Legislature(2005 - 2006)HOUSE FINANCE 519
05/01/2005 01:00 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB141 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | SB 141 | ||
HOUSE FINANCE COMMITTEE
May 1, 2005
1:18 P.M.
CALL TO ORDER
Co-Chair Meyer called the House Finance Committee meeting to
order at 1:18:30 PM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Eric Croft
Representative Richard Foster
Representative Mike Hawker
Representative Jim Holm (teleconferenced)
Representative Reggie Joule
Representative Mike Kelly
Representative Carl Moses
Representative Bruce Weyhrauch
MEMBERS ABSENT
None
ALSO PRESENT
Speaker Representative John Harris; Representative Paul
Seaton; Representative Beth Kerrtula; Representative Kurt
Olson; Senator Ralph Seekins; Melanie Millhorn, Director,
Division of Retirement and Benefits, Department of
Administration; Bruce Ludwig, Business Manager, Alaska
Public Employees Association (APEA); Virgina Ragle,
Assistant Attorney General, Department of Law; Traci
Carpenter, Staff, Senator Lyda Green; Pete Kelly, Director,
State Relations, University of Alaska; Tom Boutin, Deputy
Commissioner, Department of Revenue
PRESENT VIA TELECONFERENCE
None
SUMMARY
CS SB 141(FIN)
An Act relating to the teachers' and public
employees' retirement systems and creating defined
contribution and health reimbursement plans for
members of the teachers' retirement system and the
public employees' retirement system who are first
hired after July 1, 2005; relating to university
retirement programs; establishing the Alaska
Retirement Management Board to replace the Alaska
State Pension Investment Board, the Alaska
Teachers' Retirement Board, and the Public
Employees' Retirement Board; adding appeals of the
decisions of the administrator of the teachers'
and public employees' retirement systems to the
jurisdiction of the office of administrative
hearings; providing for non-vested members of the
teachers' retirement system defined benefit plans
to transfer into the teachers' retirement system
defined contribution plan and for non-vested
members of the public employees' retirement system
defined benefit plans to transfer into the public
employees' retirement system defined contribution
plan; providing for political subdivisions and
public organizations to request to participate in
the public employees' defined contribution
retirement plan; and providing for an effective
date.
HCS CS SB 141 (FIN) was reported out of Committee
with a "no recommendation" and with a new fiscal
note by the Department of Administration and a new
zero note by the House Finance Committee for the
Department of Administration, fiscal note #1 by
the Department of Transportation & Public
Facilities and fiscal notes #2, #4, #5, #6 and #7
by the Department of Revenue.
CS FOR SENATE BILL NO. 141(FIN)
An Act relating to the teachers' and public employees'
retirement systems and creating defined contribution
and health reimbursement plans for members of the
teachers' retirement system and the public employees'
retirement system who are first hired after July 1,
2005; relating to university retirement programs;
establishing the Alaska Retirement Management Board to
replace the Alaska State Pension Investment Board, the
Alaska Teachers' Retirement Board, and the Public
Employees' Retirement Board; adding appeals of the
decisions of the administrator of the teachers' and
public employees' retirement systems to the
jurisdiction of the office of administrative hearings;
providing for non-vested members of the teachers'
retirement system defined benefit plans to transfer
into the teachers' retirement system defined
contribution plan and for non-vested members of the
public employees' retirement system defined benefit
plans to transfer into the public employees' retirement
system defined contribution plan; providing for
political subdivisions and public organizations to
request to participate in the public employees' defined
contribution retirement plan; and providing for an
effective date.
1:19:27 PM
Representative Kelly MOVED to ADOPT Amendment #8A.
Representative Croft OBJECTED.
Representative Kelly explained that the amendment would
address the death benefit for the public employee who was
killed or disabled in the line of duty. The amount would be
$500 thousand dollars; the designated beneficiary would
receive $250 thousand dollars. The benefit would be in
addition to federal and Union benefits received.
Vice-Chair Stoltze inquired if the Administration had
compared that to existing benefits. He referenced Amendment
#14.
Representative Croft asked which section referenced
disability. Representative Hawker replied Amendment #10A.
MELANIE MILLHORN, DIRECTOR, DIVISION OF RETIREMENT AND
BENEFITS, DEPARTMENT OF ADMINISTRATION, explained that
Amendment #8A created an "obligation" benefit. The current
benefit for the Public Employee Retirement System (PERS)
members under Tier 3 includes if there were no surviving
spouse and the member had dependant children, the monthly
pension would be divided equally amongst those children.
The monthly survivor pension amounts to 40% of the member's
gross salary at the time of death. For a police and
firefighter member, the monthly survivor benefit is the
greater of 50% of the gross salary or 75% of the normal
retirement benefit earned when retired. A new benefit
outlined in the accompanying chart amounts to $500 thousand
dollars, a lump sum payment. (Copy on File).
Representative Croft pointed out that the amendment was
limited to peace officers and firefighters and asked if
current law had the same limitations. Ms. Millhorn pointed
out that the provisions in AS 39.35.430 applies to all the
other members including police and firefighters. All
members have the occupational death benefit.
Representative Croft inquired the difference between a lump-
some payment and the pension, referencing the pension time
line. Ms. Millhorn agreed.
Representative Croft thought for a young family, the pension
would be more preferable, whereas, the opposite was true for
someone about to retire.
REPRESENTATIVE PAUL SEATON pointed out the annuity numbers
indicated on the chart.
1:28:36 PM
Representative Croft observed that the chart numbers
included the average age. He thought that there could be a
large difference for particular pensioners, under what is
currently received. Representative Seaton said the chart
illustrates ages 25 to 57 years old and provides a life
expectancy.
1:30:56 PM
Representative Weyhrauch inquired if that program were in
effect, would the employee need to opt into it or would they
automatically obtain the benefit once hired. Ms. Millhorn
explained that the member would enroll at the time they were
appointed to a position and would then need to make the
election.
Representative Weyhrauch explained that the difference
between the proposal and existing law is that at present
time, they are automatically entitled to the benefit. Ms.
Millhorn reiterated that the member would be enrolled and at
that time would make the beneficiary election.
Representative Weyhrauch specifically asked if the employee
would have to elect the death penalty. Ms. Millhorn
responded that it would be expected that a member would
chosen that benefit. The member would be enrolled.
1:32:47 PM
Representative Weyhrauch asked about the difference between
the benefits if the employee were killed in the line of
duty. He inquired if the surviving children and spouse
would receive the benefit. Ms. Millhorn replied that the
spouse becomes the automatic beneficiary. Under the
amendment, it is expected that the children would become the
next-in-line beneficiary.
Representative Weyhrauch asked if the employee were over 57
and was killed, would they still receive the $500 thousand
dollars. Ms. Millhorn understood that was correct.
Representative Weyhrauch asked if there was any age
restriction on the benefit. Ms. Millhorn believed not.
1:34:54 PM
Representative Weyhrauch inquired what would the monthly
benefit be fore the family if the widow chose not to remarry
if the young PERS member was killed. Ms. Millhorn responded
$500 thousand dollars.
1:36:11 PM
Representative Weyhrauch inquired the difference of the
benefit received between that system and the existing Tier 3
benefit. Ms. Millhorn explained that it would be necessary
to do some computations based on existing statute addressing
the death benefit under Tier 3 to determine the member's
salary. She added it would be on a case-by-case basis.
1:36:52 PM
Representative Hawker understood that the amendment would
include juvenile correction officers killed by a juvenile
offender. Representative Seaton pointed out that changing
existing statute was not addressed in Amendment #8A.
Ms. Millhorn said that Amendment #8A specifies the
definition in AS 39.35.680; in that section, they would not
be covered. Representative Hawker believed that class of
employee deserves death benefits. Ms. Millhorn noted that
currently, individuals classified under existing statute are
given the benefit, however that group was not included.
1:39:24 PM
Representative Seaton reiterated that it is in existing law
and that there is other legislation trying to make that
correction. Representative Hawker argued that one injustice
does not justify another.
Representative Croft understood that current law covers
members and does not limit who receives the death benefit.
He pointed out that the proposed legislation does limit and
affects an entire class of State employees being cut out.
Representative Kelly explained that the purpose of the
amendment was to work from the system causing the problems.
The intent of the amendment addresses police and fire
fighters not covered by the death benefit. He noted other
options for employees to buy term life insurance.
1:41:17 PM
Co-Chair Meyer summarized that under the previous system,
everyone was covered, and in the proposed legislation peace
officers would be covered as defined in statute.
Representative Joule asked about the Village Public Safety
Officers (VPSO). Ms. Millborn replied that they would not
be covered under the police and fire fighter component.
Representative Joule inquired about inclusion of health
insurance benefits for surviving dependants and spouses.
Ms. Millhorn did not think it was provided, however, she
offered to research it.
1:42:59 PM
Representative Croft stated that he preferred Amendment #14,
which had been withdrawn on 4/30/05. (Copy on File). He
MOVED to substitute the text of that amendment into
Amendment #8A, which would keep the current death and
disability benefit. Representative Kelly OBJECTED. Co-
Chair Meyer understood that Amendment #14 had already been
discussed and it was determined to be unworkable.
Representative Weyhrauch argued that there had been no
determination that it was not workable. Instead, discussion
ended in determining where the payment would come from to
finance the mechanism for the amendment. The government
needs to be held responsible to pay. He stressed that these
people are putting their lives on the line and being killed
in the line of duty. Their families would be left
destitute. He stated that he could not morally vote for any
reduction in benefits to any widow or child. The State
government must pay for that benefit.
1:46:20 PM
Co-Chair Meyer accepted Amendment #14 as an amendment to the
amendment. He reiterated concern that Amendment #14 had
previously been withdrawn. Co-Chair Meyer OBJECTED to the
MOTION to AMEND Amendment #8A.
Representative Hawker stated that peace officers receive 50%
wage benefit plus are granted medical provisions. He asked
if the amendment to the amendment would restore both the
wage and medical factor.
Co-Chair Meyer pointed out previous concerns with the
amendment and asked if they still exist. Ms. Millhorn
stated that the death and disability benefits under the PERS
and Teachers Retirement System (TRS) were structured in such
a way [and not under a defined benefit type of plan], which
determines the benefit based on member's retirement
calculation as a stream of payment to that individual. That
is the difference between the two structures. She
summarized the structure and funding of the two would be
different.
Representative Seaton referenced Section D of the bill,
regarding major medical coverage elected by the surviving
spouse of the eligible member.
1:50:05 PM
Representative Croft noted that most of the persons being
referenced [as killed on the job] would not have been
"retired". The above language references retirees.
Representative Seaton responded that SB 141 was a retirement
bill and that there was a different section for the active
employees. Representative Croft argued that the above
referenced language does not identify the person killed on
the job.
Vice-Chair Stoltze noted his concern that the death benefit
be included in the legislation.
Co-Chair Meyer asked if it could be workable under the
defined contribution plan. Ms. Millhorn stated that current
provisions are structured in such a way that they work well
with the defined contribution (DC) plan. The manner in
which that benefit is calculated has the same design, but
would create issues under a DC plan.
Co-Chair Meyer asked if it could work under the defined
contribution plan. Ms. Millhorn responded it might be
problematic.
1:54:23 PM
Representative Weyhrauch questioned if a public employee
hired under the defined contribution plan, were killed or
injured in the line of duty, would they be treated as if
they were hired under Tier 3. Ms. Millhorn understood that
the amendment was intended to do that, however, there are
cost issues associated with that action. She added that
fundamental structures would need to be in place for that
design as opposed to the defined contribution plan. A DC
plan would make it indeterminate.
1:55:38 PM
Representative Hawker agreed that it would be "problematic".
He pointed out the overriding federal regulations in the
way. It becomes problematic with the construct regarding
the death benefits for peace officers. He agreed that the
amendment to the amendment was problematic and was found to
be an invalid attempt and illustrates the problem of the
entire situation. He would not support Amendment #8A. Co-
Chair Meyer agreed that Amendment #8A could be broader.
Representative Kelly summarized his understanding. He said
that the amendment does not include "other" employees. It
would be difficult to do that and should be addressed in a
separate amendment. He submitted that Amendment #8A does
"generously" address benefits for the police and fire
employees, especially when linking it together with the
federal contribution amount of ¼ million dollars. He
encouraged member's support.
1:59:00 PM
Co-Chair Meyer asked about broadening Amendment #8A.
Representative Kelly stated that he could not "support"
that. He commented that Amendment #11 offers different
options.
Representative Croft pointed out that those affected would
prefer the current system - "It works for these people".
The State does not know how the proposed system would work.
In other States, problems have resulted. He recommended
that costs be covered through the General Fund.
2:01:54 PM
A roll call vote was taken on the motion to place the
verbiage of Amendment #14 into Amendment #8A.
IN FAVOR: Joule, Stoltze, Weyhrauch, Croft
OPPOSED: Foster, Hawker, Holm, Kelly, Moses, Meyer,
Chenault
The MOTION FAILED (4-7).
2:02:45 PM
Representative Hawker recommended a defined benefit
structure and asked if police and firefighters should be
left in the existing defined benefit structure. Then the
defined contribution structure could apply to non-public
safety employees. He worried about prejudicing one class of
employee over another.
Representative Hawker voiced concern that the amendment
"places a dollar value on certain lives".
2:05:10 PM
Representative Weyhrauch asked to make a conceptual
amendment to Amendment #8A. The conceptual language would
read: "For any employee hired after the effective date of
this act, who is killed or disabled in the course of their
employment, the provision of AS 14.25.157, 160, 162, or
39.35.410, 415, 420, 430, and 440 as they existed before the
effective date of this act, shall apply." Representative
Hawker OBJECTED.
Representative Weyhrauch stated that the language would
replace Amendment #8A and if the employee was killed or
injured in the line of duty, they would not be treated the
same as they would in the defined contribution plan but
rather the same as they would be in the Tier 3 plan.
Ms. Millhorn thought the concept returned the Committee to
that of Amendment #14. Representative Weyhrauch stated that
the language was more "elegant and would provide a more
simple approach".
2:07:35 PM
Representative Kelly maintained that the original Amendment
#8A was a "great offer" and provided an annuity option. He
reiterated it was generous and that select term insurance
was also available and affordable.
Vice-Chair Stoltze thought that the proposed amendment would
"narrow the scoop" of the discussed language and that it
would fit the death benefits for police and firefighters.
He pointed out that the occurrences were rare and that the
system could absorb it.
2:09:05 PM
Co-Chair Meyer did not believe the proposed language would
be the correct fix.
2:09:39 PM
A roll call vote was taken on the motion to adopt the
conceptual amendment to Amendment #8A.
IN FAVOR: Croft, Hawker, Joule, Moses, Stoltze,
Weyhrauch
OPPOSED: Foster, Holm, Kelly, Chenault, Meyer
The MOTION PASSED (6-5).
There being NO further OBJECTION, Amendment #8A was adopted
as amended.
Representative Kelly MOVED to ADOPT Amendment #9A, which
changes the employment contribution structure to distinguish
between police and fire employees from all the other members
of the PERS system. Co-Chair Meyer OBJECTED.
Ms. Millhorn advised that based on the adoption of the
amended Amendment #8A, the Department does not know what the
costs will be. There could be an issue regarding the
percentage of that increase.
2:12:45 PM
Representative Hawker interjected that Amendment #9A was not
necessary given the adoption of Amendment #8A. Ms. Millhorn
explained there would be a difference in the funding
structure of the two plans. She was not certain what the
additional costs would be.
2:14:55 PM
Representative Hawker reiterated that Amendment #9A was
unnecessary.
Representative Kelly commented that there was a way to stay
on the defined contribution side of the funding. He
suggested that the new Amendment #8A "crosses an odd moment
of time". Amendment #9A provides an associated benefit with
the previous tier. He encouraged the Committee to move
ahead with the funding and providing the Department the
needed tools. Ms. Millhorn acknowledged it would help.
Co-Chair Meyer recommended withdrawing Amendment #9A and
revisiting to it later with new language.
2:16:24 PM
Representative Kelly WITHDREW Amendment #9A. There being NO
OBJECTION, it was withdrawn.
2:16:46 PM
Representative Kelly MOVED to ADOPT Amendment #10A. Co-
Chair Meyer OBJECTED.
Representative Kelly explained that the amendment would add
a new section on Page 57, following Line 6. The amendment
would note that an employee might opt to have additional
wage reductions to be paid into a separate account in the
Department for selected supplemental benefits.
2:17:34 PM
Representative Croft commented that currently, someone
disabled or killed on the job, would be covered under the
previous mentioned sections. Representative Weyhrauch said
that was correct.
Representative Weyhrauch indicated his support for Amendment
#10A.
Co-Chair Meyer WITHDREW his OBJECTION. There being NO
further OBJECTION, Amendment #10A was adopted.
2:19:20 PM
Representative Kelly MOVED to ADOPT Amendment #11. Co-Chair
Meyer OBJECTED.
Representative Kelly explained that the amendment would
delete all material on Page 59, Lines 24-27 and would insert
new language regarding the eligibility requirement of AS
14.25.470 or AS 39.35.870. It provides that an employee
could leave the system only up to ten years in order to have
their account remain open. He thought that the other system
was not fair.
Representative Croft read language from Page 59, Lines 24-
27, of the House State Affairs version. The effect of the
amendment would make that account "go away" after ten years.
He asked if the person had earned that money, why would it
"go away".
2:22:28 PM
Representative Seaton discussed how long the money should be
tracked. The House State Affairs (HSTA) version did not
place a limit on the time. He added it would only affect
the Health Reimbursement Account (HRA).
2:23:43 PM
Representative Croft spoke in support of the HSTA version.
He inquired the intent for those funds after that ten-year
period. Representative Seaton explained that if the
employee was not vested, they would not receive the funds
and that the funds would stay in the system.
2:25:01 PM
Representative Kelly pointed out that in the original Senate
bill, it was at five-years. Amendment #11 moves it to ten-
years. He believed that was an improvement over the
original bill.
2:26:15 PM
A roll call vote was taken on the motion to adopt Amendment
#11.
IN FAVOR: Kelly, Moses, Weyhrauch, Chenault
OPPOSED: Foster, Hawker, Holm, Joule, Stoltze, Croft,
Meyer
The MOTION FAILED (4-7).
2:27:17 PM
Representative Weyhrauch MOVED to ADOPT Amendment #18, #24-
LS0637\X.3, Craver, 4/26/05. Co-Chair Meyer OBJECTED.
Representative Weyhrauch explained that the amendment would
allow a member to increase their contribution from 8% to
11%. It would have the employer to increase contributions
from 4.5% to 8.5%.
AT EASE: 2:30:36 PM
RECONVENED: 2:40:22 PM
Representative Seaton commented that testimony heard in HSTA
Committee indicated that employees had not wanted to see the
percentages increased.
2:42:02 PM
Representative Hawker reflected on the amendment. He
observed that employees should be encouraged but not
required to make a high level of savings with provided
incentives.
Representative Weyhrauch WITHDREW Amendment #18.
2:43:28 PM
Representative Weyhrauch MOVED to ADOPT Amendment #19.
OBJECTED. Co-Chair Meyer OBJECTED for the purpose of
discussion.
Representative Weyhrauch explained that the amendment would
prevent increases beyond 2% a year, while placing a cap on
it. Representative Seaton noted that HSTA Committee had not
discussed that issue adding that the current limit was 5%.
Representative Croft said he had wanted to draft similar
legislation.
Representative Croft MOVED to AMEND Amendment #19, inserting
"or decreases" after "increases". There being NO OBJECTION,
it was changed.
2:46:06 PM
Representative Kelly stated he objected to Amendment #19.
Co-Chair Meyer asked if it addressed existing language.
Representative Weyhrauch explained that it applies to the
existing system, but does not deal with the defined
contribution plan. The proposed bill does not address
concerns in the current PERS and TRS system.
Co-Chair Meyer inquired if the amendment added a new
section. Representative Weyhrauch clarified it was
conceptual and would be under existing language in the PERS
and TRS statutes.
Representative Hawker thought that this would be good timing
for Amendment #19. It is important that the pension plan
never gets bought. The reserve of assets is advisable and
it is important when an employee retires, they can count on
their cash flow. The defined benefit plan is based on the
concept of "continuity of existence". He reiterated that
Amendment #19 would provide a good management tool and was
the responsible approach.
2:52:08 PM
Representative Seaton interjected that the only system
currently in place is raising the employer contribution
rate. If that does not happen, everything in it would grow
at an estimated 8.25% per year.
2:53:04 PM
Representative Kelly thought that the 2% assumes that the
State is in better shape than it really is. He preferred to
keep the "pressure on the employee". He encouraged the
change.
2:54:29 PM
A roll call vote was taken on the motion.
IN FAVOR: Hawker, Joule, Stoltze, Weyhrauch, Croft
OPPOSED: Holm, Kelly, Moses, Foster, Chenault, Meyer
The MOTION FAILED (5-6).
Representative Weyhrauch MOVED to ADOPT Amendment #20.
Vice-Chair Stoltze OBJECTED.
Representative Weyhrauch noted that the amendment adds a new
section. The proposed bill does not deal with the current
PERS and TRS unfunded liability concerns. The amendment
recommends that the Legislature solve the problems next year
and if that does not happen, the act would sunset on June
st
1, 2006.
2:57:07 PM
Representative Hawker applauded Amendment #20 and urged
consideration of it. He pointed out components within SB
141, dealing with the unfunded liability plan. He asked if
Representative Weyhrauch would support language stating
"resulting in new plan tiers". Representative Weyhrauch
responded that had been his intent and that he had no
objection gauge.
There being NO OBJECTION, the amended language was added.
2:58:55 PM
Representative Kelly indicated that he would not support the
amendment. Representative Weyhrauch stated he felt strongly
about it. He thought that there were mechanisms to help fix
the PERS & TRS concerns. He acknowledged that it would not
be popular because it would involve bonds and big spending;
however, stressed it was "too serious to ignore".
3:00:46 PM
Representative Seaton pointed out that the HSTA Committee
had also been dealing with HB 238, which has a funding
mechanism for past service costs and for the new employees
coming on line. $2.68 billion dollars would need to be
deposited.
3:01:24 PM
Co-Chair Meyer understood that the intent of the legislation
was only to establish a structure to deal with the
"bleeding". He was concerned that the amendment would only
give the process one year to succeed or fail, which he did
not believe was enough time. Representative Weyhrauch
responded it would be one year more than the Legislature has
had on the entire bill. He believed that the Legislature
could amend the legislation in the following year, to create
a bill with universal agreement.
Vice-Chair Stoltze agreed with the need to stop the bleeding
and to address current statewide deficiencies. He stated
that the amendment could provide the State with a mechanism
to address the concerns. He supported the amendment.
3:04:21 PM
Representative Hawker MOVED to AMEND Amendment #20,
inserting language: "Resulting in new plan tiers", into
Section (A), following "act". There being NO OBJECTION, it
was amended.
Co-Chair Meyer voiced concern that new employees hired after
the bill passes, would be confused regarding which plan they
were under. Additionally, it could cause administrative
confusion.
Vice-Chair Stoltze WITHDREW his OBJECTION. Co-Chair Meyer
OBJECTED.
3:05:44 PM
A roll call vote was taken on the motion to adopt amended
Amendment #20.
IN FAVOR: Joule, Stoltze, Weyhrauch, Croft, Hawker
OPPOSED: Holm, Kelly, Moses, Foster, Meyer
Co-Chair Chenault was not present for the vote.
The MOTION FAILED (5-5).
3:06:27 PM
Representative Weyhrauch MOVED to ADOPT Amendment #21.
Vice-Chair Stoltze OBJECTED.
Representative Weyhrauch explained that adding a new section
would amend the uncodified law of the State of Alaska and
would make the Legislative intent a part of the bill.
3:07:16 PM
Representative Seaton advised that language had originally
been included in the bill; however, it was requested that it
be Intent Language because if listed as intent, it would be
more open. He wanted to guarantee that the cost containment
moves forward.
Representative Weyhrauch recommended adding language to Line
3, "but not limited to", which would provides a range of
examples and would broaden the range of possibilities. He
MOVED that change. There being NO OBJECTION, Amendment #21
was amended.
Vice-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION, amended Amendment #21 was adopted.
Representative Weyhrauch MOVED to ADOPT Amendment #22.
Vice-Chair Stoltze OBJECTED.
3:09:31 PM
Representative Weyhrauch advised that Amendment #22
regarding the University of Alaska, deletes Section 35-50.
The University has hired faculty from other facilities that
have a 401K plan, bringing them into the University's plan.
The University wants the ability to offer those employees
the option of the defined contribution plan to dovetail with
their existing plans. He noted that the Board of Regents
currently has the authority to set the rates on their
optional retirement plan. Amendment #22 would delete that
out of the bill.
3:10:41 PM
Representative Seaton said that he had spoke to the
University and that Sections 33 & 34 would manage it if the
bill passes. The sponsor's intention was to delete the
board. Representative Weyhrauch explained that the intent
was to force the retirement program, not the management
structure.
Representative Kelly commented that concerns regarding the
University are a large portion of the bill. The current
University contribution should not continue to be tied to
that in the future. Additionally, it reflects broad support
on campus. It leaves it up to the Board of Regents and
would affect no existing employees. He spoke against the
amendment, noting that the University strongly favors the
current system.
3:13:52 PM
Representative Weyhrauch countered that the University
employees did not want the proposed system.
3:14:15 PM
BRUCE LUDWIG, BUSINESS MANAGER, ALASKA PUBLIC EMPLOYEES
ASSOCIATION (APEA), noted that all employees his Union
represents are opposed to that aspect for future hires. The
Board of Regents has the ability to change the contribution
rate. The employees at the University should be able to
transfer within the municipalities and have the same
portability they currently enjoy.
3:15:14 PM
Representative Weyhrauch asked if there was a way to solve
the issue. Mr. Ludwig replied that the Board of Regents
should make a decision to cut the rate.
Representative Kelly disagreed and stressed that is a "must"
issue for the University.
3:16:23 PM
Mr. Ludwig advised that was included in Title 14 and gives
the Board of Regents the authority to set it up. Co-Chair
Meyer was confused and thought that the sponsor's staff
should address it.
TRACI CARPENTER, STAFF, SENATOR LYDA GREEN, explained that
the University approached the Senator requesting the
language be added for several reasons:
· Their contribution rates to the optional retirement
were tied to the three-year average of the TRS
contribution rate. It is true that the Board of
Regents is responsible for making that decision and
can set the rates.
· The University would like to be able to offer both
the optional retirement program and a mandatory
program. They wanted the option to create something
that they could attract new employees to the
University with.
· They want to be able to develop their own health
care plan.
· There is issue related to the contracts expiring
June 2006.
· The University wants to make it clear that
retirement rights are not subject to selective
bargaining.
3:19:21 PM
Representative Hawker asked the Union's objection to that
language. Mr. Ludwig stated that for the classified
employees, it would end the portability that currently
exists in the TRS system. Representative Croft asked which
section Mr. Ludwig was referencing. Mr. Ludwig replied
Sections 35-50. Another objection, if those persons were
not already in the State retirement system, there is a
question if the Constitution would apply. If that were the
case, the employee groups should be able to bargain with
their employer to put more money into pension or wages.
3:21:08 PM
Representative Hawker understood that the argument was
absolute portability. Mr. Ludwig explained that there was a
phase-in for vestment. If an employee worked for three
years, they would not be able to access 100% of their money
and that would not be considered "portability".
Representative Hawker asked if the Union was looking for
immediate vesting in all contributions. Mr. Ludwig
explained that was not what the amendment addresses. The
current system provides portability in the State of Alaska
and that an employee's pension would follow them, as does
their vesting. If the University were allowed to separate
and no longer be a part of that system, the portability
would leave.
Representative Hawker understood that the University is a
part of the State system, which a guarantee that what
happens there occurs within the entire State system. He
questioned the merit of allowing the University to make
those decisions internally. Mr. Ludwig replied that the
bill would remove it from the collective bargaining unit for
negotiations.
3:23:25 PM
Mr. Ludwig explained that even the Court system was covered
within the PERS & TRS system. Representative Hawker thought
that the language was a bit "over-reaching".
3:24:20 PM
Representative Foster asked how it would affect portability.
Ms. Carpenter responded that Mr. Ludwig's interpretation
could be correct in that Section 35 indicates that the
retirement programs could be optional or mandatory. In the
future, the University could create a mandatory program and
might not be in the PERS or TRS system at that time.
Presently, the University employees who are members of the
PERS and TRS program would remain in. The language affects
only a person hired after July 1, 2005. Right now,
retirement benefits are not subject to collective
bargaining. The University requested that the language be
clear so they can promote the optional retirement program.
3:26:29 PM
Mr. Ludwig explained that the University held meetings with
the Union announcing their intention to make it a "mandatory
optional plan" for all employees at the University.
3:26:56 PM
PETE KELLY, DIRECTOR, STATE RELATIONS, UNIVERSITY OF ALASKA,
agreed with comments made by Ms. Carpenter. He explained
the competitive process the University goes through to
entice employees, which is different from other State
agencies. They would like to see that section remain in the
bill.
3:27:47 PM
Representative Hawker asked if it was the University's
intent to offer the option of removing the pension plan from
the protection provided to State employees. Also, would the
University continue the prohibition against collective
bargaining.
Mr. Kelly said yes. It allows the Board of Regents to
establish rates on a more competitive base. It is
"imperative" that the University remain competitive
nationwide. He reiterated that the University marketplace
is more competitive than others.
3:29:51 PM
Vice-Chair Stoltze thought that the situation was more
"global" and would most likely affect the custodial staff as
well. Mr. Ludwig said that was correct. The optional plan
is currently in place. Presently, about half of the
professional staff has selected the optional plan in
statute.
Vice-Chair Stoltze inquired how many employees would be
affected. Mr. Ludwig replied there are 2,000 employees
currently claiming PERS & TRS in that system. Mr. Kelly
corrected that there are about 3,600 full time employees and
7,000 seasonal employees.
Vice-Chair Stoltze inquired about the protections. Mr.
Kelly explained that the mitigating factor results from a
higher level within that system.
3:32:37 PM
Representative Kelly added that if the Legislature adopts a
defined contribution plan, it would be an opportune time to
shift the plan within the University. There is a
demonstrated "popularity" for the other retirement plan. He
noted he would vote against the amendment.
3:33:50 PM
Representative Croft asked what the effect would be if
language on Page 39, Line 26, clarified that retirement
programs must be optional. Mr. Ludwig said that would
satisfy most of the concerns, as it would still provide the
optional plan. The University could offer different plans
depending on the type of service that the employee provides
to the institution. He thought that custodians, working
anywhere in the State system, should have the same pension
plan options.
3:35:53 PM
Mr. Kelly argued that would be the language in the DC plan.
A roll call vote was taken on the motion to adopt the
amended Amendment #22.
IN FAVOR: Joule, Stoltze, Weyhrauch, Croft, Hawker
OPPOSED: Kelly, Moses, Foster, Holm, Chenault, Meyer
The MOTION FAILED (5-6).
3:37:05 PM
Representative Hawker MOVED to ADOPT conceptual Amendment
#23. Representative Kelly OBJECTED.
Representative Hawker explained that the amendment would
remove all language instituting a new tier system.
3:39:23 PM
Additionally, the amendment would add a new bill section,
which would add back a section from the original Senate
version. It would have all current active members
participate in future changes for the normal cost factor of
funding the plan and would amount to a small portion over
time from the current contribution. The change could bring
labor interests into long-term concerns regarding medical
issues.
Representative Hawker discussed new language that would
authorize the Municipal Bond Bank to engage in pension
obligation transactions as drafted in HB 278. He pointed
out that both the Alaska Municipal League and the Alaska
Government Finance Officer's Association supports the
language. He said he discussed the issue with Senator
Steadman and that it would allow the unfunded liability
funded.
Representative Hawker pointed out a change to Page 5 of
amendment, which would add a fiscal note to fund the TRS
component of HB 1.
Representative Holm asked how that bond authorization would
affect the State's rating. Representative Hawker understood
that the rating agencies consider the unfunded pension
obligation when funding. The issuance of a formal bond to
mitigate some of that debt could actually raise the State's
public debt perspective on Wall Street.
3:45:23 PM
Co-Chair Meyer suggested that bonding could still be
implemented without "gutting the whole bill".
Representative Hawker advised deferring action on the new
tier system at this time and that such action could provide
the Legislature the opportunity to use the summer to
consider the retirement and benefit plans. He maintained
that there has not been adequate time to adequately explore
the existing plan and the proposed changes.
Representative Seaton interjected that the HSTA Committee
dealt with Page 1, Lines 7-15. He opined that it could
cause a lawsuit. Representative Hawker noted he had not yet
discussed the option with the labor unions.
3:48:14 PM
Representative Seaton referred to the normal cost rate
sheet. (Copy on File.) He explained that the current PERS
cost rate is 14.28%-employer; TRS is 14.28%-employeer. The
total contribution is 22.93%.
Representative Hawker recommended that employees bear a
portion of the costs. Representative Seaton responded that
the original language limited an increase on an employee
contribution to an increase of one half percent per year.
He did not think that language had been included.
Representative Hawker quoted language from the bill,
demonstrating inclusion of that was critical point.
Co-Chair Meyer requested more information on the proposed
bonding mechanism.
3:51:24 PM
TOM BOUTIN, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
advised that he was familiar with pension obligation bonds.
If pension obligation bonds were to be issued by the
municipalities, the Municipal Bond Bank would be the place
to do it. He believed that if the fiduciaries wanted to use
leverage, there could be a more cost effective way to do it.
Issuance tends to be about 2% of the bond proceeds. He
added that credit rating agencies are not very favorable on
those bonds.
Representative Hawker said the market place would prevail.
He maintained that the Legislature is giving local
governments the authority and option to make that decision.
3:55:08 PM
Co-Chair Meyer thought that Amendment #23 addresses two
subjects. Representative Hawker believed that was an
appropriate place to bring up pension bonds.
3:55:39 PM
Representative Croft spoke to "sharing the burden" with the
employer/employee through the rates. He acknowledged that
the amendment identifies that the risk is shared as opposed
to the HSTA version of the bill. He commented that the
issue would appear sooner or later. The current bill shifts
the risk entirely to the employees, while the amendment
shares the risk between the two. He argued for the adoption
of Amendment #23.
3:58:27 PM
Representative Kelly emphasized that the work done on the
bill to date should not be changed by the amendment. He
submitted that there is a $5.7 million unfunded liability
that needs fixing and SB 141 is a more conservative plan and
could do it. He spoke strongly against Amendment #23 and
opined that it would create a lawsuit. He believed that
more time would be necessary to address bonding issues. He
restated previous arguments in favor of the HSTA Committee
version of SB 141.
4:03:46 PM
Representative Hawker indicated his concern that the DC plan
has been presented as an option that could "stop the
bleeding". He stated that adopting the plan means that no
new employee money would go into the existing pension plan.
He maintained that the bill would "cut out the heart of the
existing plan." He related three overriding principles:
· Shared benefit of joint investment,
· Shared risk of the cost, and
· Continuity of the plan.
He voiced concern about maintaining the current plan for a
long period. He proposed a hybrid plan combining the DB and
DC plans. He stated that there are too many unanswered
questions and requested more time to adequately address the
pension situation through a more open process.
4:08:51 PM
Representative Kelly spoke to the point made by
Representative Hawker that the employee's contribution would
not be adequate under the DC plan. He stated that was not
correct and listed problems of waiting until next year to
address those concerns. He noted that there would be 5,500
new hires, which will create an unfunded liability risk.
4:11:21 PM
A roll call vote was taken on the motion to adopt Amendment
#23.
IN FAVOR: Weyhrauch, Croft, Hawker, Joule
OPPOSED: Kelly, Moses, Stoltze, Foster, Holm, Meyer,
Chenault
The MOTION FAILED (4-7).
Representative Croft MOVED to ADOPT Amendment #24.
Representative Joule OBJECTED.
Representative Croft explained that Amendment #24 would
eliminate all aspects except the Board. He related the
difficulties of living on a small retirement stipend even
with decent medical opportunity. He stated that the
amendment would apply to all employees and could attract
more qualified future employees to the State. He explained
that the gap was not created by the defined benefit system,
but by mismanagement. The target would provide an adequate
retirement benefit.
4:18:14 PM
Representative Kelly reported that the entire nation is
considering health care concerns at this time. He
emphasized that the State of Alaska can no longer afford to
"underwrite" that risk. He urged a no vote on the
amendment.
Representative Weyhrauch questioned if there had been
testimony in the HSTA Committee regarding no more money
coming in to fund PERS/TRS. Representative Seaton admitted
that there has been confusion regarding that issue. The
retirement system is pre-funded and explained how the past
service cost was created. He added that the entire wage
base was a percentage base.
Representative Joule maintained his objection.
4:21:25 PM
A roll call vote was taken on the motion to adopt Amendment
#24.
IN FAVOR: Moses, Weyhrauch, Croft, Hawker, Joule
OPPOSED: Stoltze, Foster, Holm, Kelly, Meyer, Chenault
The MOTION FAILED (5-6).
Representative Croft WITHDREW Amendment #25.
Representative Weyhrauch MOVED to ADOPT Amendment #26.
Vice-Chair Stoltze OBJECTED.
Representative Weyhrauch explained the amendment addressed
legislative employees, deleting "120 days" on Page 77, Lines
9 and 14, and replacing it with "100 days".
4:24:35 PM
Vice-Chair Stoltze maintained his objection.
Representative Kelly asked clarification. Representative
Weyhrauch reiterated the intent.
4:26:29 PM
Representative Croft inquired about vesting and if it would
affect people that are at that level of service already.
Representative Weyhrauch understood that the person's
current status could not be taken away. The language would
only apply to the DC benefit plan.
Vice-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION, Amendment #26 was adopted.
Representative Kelly MOVED to ADOPT new Amendment #27.
OBJECTED. Vice-Chair Stoltze OBJECTED for discussion
purposes.
AT EASE: 4:28:21 PM
RECONVENE:4:47:23 PM
Ms. Millhorn indicated that the Division had requested the
amendment. She explained that the amendment would address
current language under the DC plan, dealing with second
families of deceased members, specifically retirees. The
amendment speaks to that area within the existing statute
provisions. It would remove coverage for an undefined
number of spouses of survivors covered under the medical
plan who are not eligible for the medical benefits in accord
with the Internal Revenue Code, Section 152. The Division
is engaged in determining how many individuals it would
impact. She stated that the circumstance must be corrected
and remedied.
4:50:33 PM
Representative Weyhrauch questioned the downside of the
amendment. Ms. Millhorn replied there is no downside. It
would preserve the tax-qualified status for the plan. For
those individuals receiving the benefits would no longer be
eligible for that coverage.
4:51:45 PM
Representative Hawker asked if current statute was
inconsistent with the federal qualified plan and thus
endangering the plan. Ms. Millhorn agreed.
4:52:41 PM
Representative Weyhrauch inquired if the amendment had come
forward because it was noticed that something was wrong with
the bill. Ms. Millhorn commented that the need for the
amendment came forward following an analysis of some tier
legislation. A Department of Law representative discovered
the issue.
VIRGINIA RAGLE, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, noted that the issue became apparent when the
Department was working as consultants on the legislation.
Representative Croft asked who the people were that would no
longer receive those benefits.
4:54:00 PM
Ms. Ragle responded it would be the new spouse and/or new
dependants of the survivor of the retiree.
Vice-Chair Stoltze WITHDREW his OBJECTION. Representative
Weyhrauch observed that the amendment addresses the existing
PERS/TRS structure. It would not preclude amendments
related to the Tier 1, 2 and 3 systems.
There being NO further OBJECTION, Amendment #27 was adopted.
4:54:57 PM
Representative Kelly MOVED to ADOPT Amendment #28. Vice-
Chair Stoltze OBJECTED.
Representative Weyhrauch explained that Amendment #28, would
add a new subsection to Page 49. The amendment addresses
the additional fiduciary obligation of the Board. He
requested to amend Amendment #28 by adding the language,
"Assist in prescribing policies". He thought that would
create more an advisory capacity.
Representative Seaton commented that the structure of the
new board would be different from the old one. They would
be providing actuarial, balancing and financing. The
Director of the Division of Retirement and Benefits would be
running the system and thought that the amended amendment
would make it a more difficult duty for the board.
Representative Weyhrauch acknowledged his intent place it
more into an advisory capacity.
4:58:11 PM
Representative Kelly agreed, it would not obligate the Board
to write the regulations but would keep them more connected.
4:58:47 PM
Vice-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION, amended Amendment #28 was adopted.
Representative Hawker MOVED to ADOPT Amendment #29. Co-
Chair Meyer OBJECTED.
4:59:14 PM
Representative Hawker explained that the amendment addressed
the pension obligation bond authority. The amendment would
provide an option for the communities and municipalities.
He pointed out it has wide support on both sides of the
Legislature.
5:00:32 PM
Vice-Chair Stoltze MAINTAINED his OBJECTION as he thought
that the amendment was a separate bill.
Representative Kelly agreed with Vice Chair Stoltze. He
preferred that Amendment #29 [HB 278] be a separate piece of
legislation.
5:02:50 PM
Co-Chair Meyer echoed sentiments of the previous testimony.
He pointed out that HB 278 was currently in the House State
Affairs committee. Representative Seaton acknowledged that
was true.
Representative Croft maintained that if Amendment #29 were
not adopted, legislators would not be addressing the
TRS/PERS concern. SB 141 does define a new system, however,
the old balance is not being addressed.
5:04:15 PM
Representative Kelly expected that the new board would be
charged with providing recommendations. He suggested it
would be the natural place to put HB 278.
5:05:23 PM
Representative Hawker responded to Representative Kelly that
there was nothing in Amendment #29 that related it to the
Percent of Market Value (POMV) approach.
Co-Chair Meyer looked forward to HB 278 coming to the House
Finance Committee for discussion purposes. He commented it
would be premature to take it up without the House State
Affairs Committee doing their work first. He pointed out
that adoption would require a title change.
A roll call vote was taken on the motion to adopt Amendment
#29.
IN FAVOR: Weyhrauch, Croft, Hawker, Joule, Stoltze
OPPOSED: Foster, Holm, Kelly, Moses, Meyer, Chenault
The MOTION FAILED (5-6).
5:09:17 PM
Co-Chair Chenault pointed out that fiscal note #8 had been
zeroed out. He explained the reasoning for that change.
There being NO OBJECTION, the new note was adopted.
5:12:08 PM
Representative Foster MOVED to REPORT HCS CS SB 141 (FIN)
out of Committee with individual recommendations and with
the accompanying fiscal notes. Representative Weyhrauch
OBJECTED.
5:14:02 PM
A roll call vote was taken on the motion.
IN FAVOR: Foster, Hawker, Kelly, Moses, Stoltze,
Chenault, Meyer
OPPOSED: Croft, Joule, Weyhrauch
Representative Holm was not present for the vote.
The MOTION PASSED (7-3).
HCS CS SB 141 (FIN) was reported out of Committee with a "no
recommendation" and with a new fiscal note by the Department
of Administration and a new zero note by the House Finance
Committee for the Department of Administration, fiscal note
#1 by the Department of Transportation & Public Facilities
and fiscal notes #2, #4, #5, #6 and #7 by the Department of
Revenue.
ADJOURNMENT
The meeting was adjourned at 5:14 P.M.
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