Legislature(2005 - 2006)

04/28/2005 02:50 PM FIN


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                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 28, 2005                                                                                           
                         2:50 P.M.                                                                                              
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Meyer called the House  Finance Committee meeting to                                                                   
order at 2:50:48 PM.                                                                                                          
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Eric Croft                                                                                                       
Representative Mike Hawker                                                                                                      
Representative Jim Holm                                                                                                         
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Carl Moses                                                                                                       
Representative Bruce Weyhrauch                                                                                                  
                                                                                                                                
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Richard Foster                                                                                                   
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative  Paul Seaton; Senator  Bert Steadman;  Suzanne                                                                   
Cunningham,  Staff,  Representative   Kevin  Meyers;  Melanie                                                                   
Millhorn,  Director,  Division  of Retirement  and  Benefits,                                                                   
Department  of Administration;  Miles Barker, Staff,  Senator                                                                   
Burt Steadman                                                                                                                   
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Rose  Kalamarides, Administrator  for  the Teamsters  Medical                                                                   
Plan, Anchorage                                                                                                                 
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 217    An Act  relating to  the determination of  full and                                                                   
          true value of taxable municipal property for                                                                          
          purposes of calculating funding for education and                                                                     
          certain other programs.                                                                                               
                                                                                                                                
          HB 217 was POSTPONED.                                                                                                 
                                                                                                                                
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   nonvested                                                                   
          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.                                                                                                                 
                                                                                                                                
          CS SB 141(FIN) was HEARD  and HELD in Committee for                                                                   
          further  consideration.  SB  141 was placed  into a                                                                   
          work  group  consisting of:  Chair,  Representative                                                                   
          Kelly  and  with  members   Representative  Hawker,                                                                   
          Representative Weyhrauch  and Representative Croft.                                                                   
                                                                                                                                
2:51:48 PM                                                                                                                    
                                                                                                                                
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.                                                                                                            
                                                                                                                                
2:53:17 PM                                                                                                                    
                                                                                                                                
Representative  Hawker   MOVED  to  ADOPT  work   draft  #24-                                                                   
LS0637\C, Craver, 4/26/05, as  the version of the bill before                                                                   
the Committee.   Representative  Joule  OBJECTED in order  to                                                                   
hear the changes.                                                                                                               
                                                                                                                                
SUZANNE  CUNNINGHAM,  STAFF,   REPRESENTATIVE  KEVIN  MEYERS,                                                                   
explained  the  changes  made between  the  proposed  version                                                                   
("C")  and  the  House  State Affair  version  ("X")  of  the                                                                   
legislation.                                                                                                                    
                                                                                                                                
2:55:28 PM                                                                                                                    
                                                                                                                                
Ms. Cunningham  pointed out  that in  version "C",  the first                                                                   
change made was contributions  of the employers.  The medical                                                                   
percentage  was  reduced  to 1.75%,  Page  15,  Lines  14-24,                                                                   
pertaining to the Teacher's Retirement System (TRS).                                                                            
                                                                                                                                
Ms.   Cunningham   referenced   Pages  82-83,   which   lists                                                                   
contributions by employers in  the Public Employee Retirement                                                                   
System (PERS).                                                                                                                  
                                                                                                                                
2:57:52 PM                                                                                                                    
                                                                                                                                
Ms. Cunningham commented  on the changes made  to the medical                                                                   
component of the  bill, eliminating the requirement  that the                                                                   
person retire directly from the  system.  That information is                                                                   
located on Page 25.                                                                                                             
                                                                                                                                
2:58:48 PM                                                                                                                    
                                                                                                                                
Representative Croft asked about  the change made on Page 58.                                                                   
Ms. Cunningham explained that  was the increase from 2% to 3%                                                                   
to the Health Care Reimbursement Account (HRA).                                                                                 
                                                                                                                                
2:59:18 PM                                                                                                                    
                                                                                                                                
Ms. Cunningham pointed  out that Page 25, Line  13, indicates                                                                   
the eligibility requirements for  receiving medical benefits.                                                                   
In  version  "C",  the requirement  that  the  person  retire                                                                   
directly from the system was eliminated.                                                                                        
                                                                                                                                
3:01:13 PM                                                                                                                    
                                                                                                                                
Ms. Cunningham referenced access  to medical coverage and the                                                                   
normal retirement age as listed on Page 26.                                                                                     
                                                                                                                                
                                                                                                                                
AT EASE:       3:02:46 PM                                                                                                     
RECONVENE:     3:03:23 PM                                                                                                     
                                                                                                                                
                                                                                                                                
Ms. Cunningham stated  that there were no changes  made under                                                                   
the defined contribution retirement account.                                                                                    
                                                                                                                                
Representative  Croft   understood  that  it   increased  the                                                                   
contribution  by 1%.   Ms. Cunningham  reiterated that  there                                                                   
had been no changes to the defined contribution account.                                                                        
                                                                                                                                
3:04:36 PM                                                                                                                    
                                                                                                                                
Ms.   Cunningham  highlighted   the  changes   made  to   the                                                                   
contribution details, made by  the employers, listed on Pages                                                                   
15 &  83.  That language  decreases the medical  contribution                                                                   
from 3.75% to  1.75% and increases the HRA  contribution from                                                                   
2% to 3%.                                                                                                                       
                                                                                                                                
3:05:24 PM                                                                                                                    
                                                                                                                                
Representative  Croft  pointed  out that  the  proposed  bill                                                                   
would keep  the existing employee  contribution and  that the                                                                   
employer contribution  rate would  change.   He asked  if the                                                                   
3.7% was  determined on  base salary.    Ms. Cunningham  said                                                                   
yes.                                                                                                                            
                                                                                                                                
3:06:26 PM                                                                                                                    
                                                                                                                                
Representative  Croft inquired why  the change was  made from                                                                   
3.75% to  1.75%.   Ms. Cunningham  advised that pertained  to                                                                   
another  part of the  bill.   The House  State Affairs  (STA)                                                                   
version (X) established the eligibility  age, 60 months prior                                                                   
to age eligibility  of Medicare.  A person  would be eligible                                                                   
at age  60 to receive  retirement and  medical benefits.   It                                                                   
could be more beneficial to a  retiree, who retires at age 65                                                                   
that the benefit  actually comes at the age of  65 and not at                                                                   
age 60.                                                                                                                         
                                                                                                                                
3:08:09 PM                                                                                                                    
                                                                                                                                
Representative  Croft  questioned  if the  total  contributed                                                                   
amount  was  for  medical  only  or  medical  and  retirement                                                                   
purposes.                                                                                                                       
                                                                                                                                
3:09:28 PM                                                                                                                    
                                                                                                                                
Ms.  Cunningham  noted  that  the  vesting  details  did  not                                                                   
change.    (Copy  on File).    The  medical  program  section                                                                   
removed the requirement  to retire directly from  the system.                                                                   
Additionally,  it changed the  age back  to 65, the  Medicare                                                                   
eligible age with ten years service.                                                                                            
                                                                                                                                
Representative  Croft asked  why the  language was used  that                                                                   
Medicaid  eligible  age is  65  years  old.   Ms.  Cunningham                                                                   
requested that  Representative Seaton testify to  that as the                                                                   
change was made in the House State Affairs Committee.                                                                           
                                                                                                                                
3:11:08 PM                                                                                                                    
                                                                                                                                
Ms. Cunningham  pointed out the  change of the  retiree share                                                                   
of   the  medical   premium   increased   from   3%  to   5%.                                                                   
Representative  Croft asked  if  the intent  was  to ask  the                                                                   
retiree to pay a premium for insurance,  which would decrease                                                                   
depending   on   the   number   of  service   years.      Ms.                                                                   
Cunningham said yes.                                                                                                            
                                                                                                                                
3:12:24 PM                                                                                                                    
                                                                                                                                
Ms. Cunningham  commented on an  amendment made in  the House                                                                   
State  Affairs Committee,  which  provided  that a  dependant                                                                   
child, born to  an eligible recipient, would be  the only one                                                                   
eligible    for    qualifying   for    dependant    coverage.                                                                   
Representative Croft advised that  did not make a substantive                                                                   
change.                                                                                                                         
                                                                                                                                
3:14:28 PM                                                                                                                    
                                                                                                                                
Discussion occurred between Representative  Weyhrauch and Ms.                                                                   
Cunningham regarding that language.                                                                                             
                                                                                                                                
3:15:16 PM                                                                                                                    
                                                                                                                                
Ms. Cunningham  stated that the employer would  contribute 3%                                                                   
of the annual  average of the employer's compensation  to the                                                                   
health reimbursement arrangement (HRA).                                                                                         
                                                                                                                                
3:16:13 PM                                                                                                                    
                                                                                                                                
Ms.  Cunningham  stated that  the  version  in front  of  the                                                                   
Committee would  allow a 10-year window for  terminated, non-                                                                   
vested people to return to service  eligible to receive their                                                                   
HRA.                                                                                                                            
                                                                                                                                
Co-Chair  Meyer thought  that it would  be an  administrative                                                                   
burden to retain  them longer than 10-years.   Ms. Cunningham                                                                   
pointed out that  the Senate Finance Committee  version had a                                                                   
5-year  window.  The  House State  Affairs Committee  removed                                                                   
that  window,  keeping  it  unlimited.    The  House  Finance                                                                   
Committee version is the compromise.                                                                                            
                                                                                                                                
3:17:20 PM                                                                                                                    
                                                                                                                                
Ms. Cunningham explained the changes  to the board structure,                                                                   
from three  non-beneficiaries to one  from PERS and  one from                                                                   
TRS.  Both PERS  and TRS could submit a list  of names to the                                                                   
Governor for appointment.                                                                                                       
                                                                                                                                
Representative Croft  pointed out the use of  "may" and asked                                                                   
if the Governor  would be required to select  from that pool.                                                                   
Ms. Cunningham said he would.   Representative Croft inquired                                                                   
if  there was  a  requirement for  legislative  confirmation.                                                                   
Ms. Cunningham stated  that it would be only  appointments by                                                                   
the Governor.                                                                                                                   
                                                                                                                                
Representative Croft pointed out  that in the prior versions,                                                                   
the appointments included those  employees.  Current language                                                                   
does  not mandate  from that  list.   Ms. Cunningham  replied                                                                   
that  was  correct.   Co-Chair  Meyer  interjected  that  the                                                                   
"hope" was to choose someone with expertise in those areas.                                                                     
                                                                                                                                
3:19:46 PM                                                                                                                    
                                                                                                                                
Representative Croft addressed  the recognition of confidence                                                                   
and asked  if it had been  included in the  proposed version.                                                                   
Ms. Cunningham said it was.                                                                                                     
                                                                                                                                
3:20:02 PM                                                                                                                    
                                                                                                                                
Ms. Cunningham added  that language was put back  in and that                                                                   
appointees  must  be eligible  to  receive a  Permanent  Fund                                                                   
Dividend.                                                                                                                       
                                                                                                                                
Ms. Cunningham  pointed  out in the  proposed version,  there                                                                   
were four-year terms with a maximum  of two consecutive terms                                                                   
with a one-year break required between.                                                                                         
                                                                                                                                
3:20:46 PM                                                                                                                    
                                                                                                                                
Ms. Cunningham said additionally,  there is a requirement for                                                                   
the  board to  annually  evaluate  the employer's  right  for                                                                   
medical insurance including a  per diem increase from $150 to                                                                   
$400 per day.                                                                                                                   
                                                                                                                                
3:21:18 PM                                                                                                                    
                                                                                                                                
Ms. Cunningham  highlighted the  differences in the  proposed                                                                   
committee substitute,  pointing out the language  for penalty                                                                   
for false statements, AS 14.25.10.                                                                                              
                                                                                                                                
3:22:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PAUL  SEATON spoke to the changes  between the                                                                   
two versions  of the  legislation.   The House State  Affairs                                                                   
Committee attempted  to address  ways for eliminating  future                                                                   
unfunded  liabilities.    Unfortunately,  the  House  Finance                                                                   
Committee substitute  ads a number of those  liabilities back                                                                   
in and are mostly are related to the medical system.                                                                            
                                                                                                                                
The   "C"   (House   Finance   Committee)   version   creates                                                                   
liabilities because it will not  generate enough funds to pay                                                                   
for  future   benefits.     The  Mercer   group  made   their                                                                   
calculations based  on the assumptions  that people  would be                                                                   
retiring  directly from  the  system.   In  the "C"  version,                                                                   
employees  would not  have to  retire out of  the system  and                                                                   
would expand the pool of potential retirees.                                                                                    
                                                                                                                                
3:24:40 PM                                                                                                                    
                                                                                                                                
Representative  Weyhrauch  inquired  why  that had  not  been                                                                   
calculated.   Representative Seaton replied that  the version                                                                   
before the  Committee eliminates  the language that  retirees                                                                   
have to retire directly from the  system.  The pool of people                                                                   
that have ten years  service and who would be  able to retire                                                                   
would expand.   The  House State  Affairs version  stipulates                                                                   
that  the  person would  have  to  retire directly  from  the                                                                   
system after 10 years of service.                                                                                               
                                                                                                                                
Representative   Seaton   addressed   unfunded   liabilities,                                                                   
pointing out that medical benefits  were significantly higher                                                                   
post 65-years than those in the previous version.                                                                               
                                                                                                                                
3:26:50 PM                                                                                                                    
                                                                                                                                
Representative Croft  spoke to retiring from the  system.  He                                                                   
was concerned  that someone beginning  at 30 years  old, knew                                                                   
that they would not be covered  at all if they did not retire                                                                   
from the State system, would consider other options.                                                                            
                                                                                                                                
Representative  Seaton  reiterated  that the  employee  would                                                                   
need  30 years  to  retire from  the system  or  10 years  in                                                                   
reaching retirement  age.   If the person  had less  than 30-                                                                   
years service,  they would have  to retire directly  from the                                                                   
State system.   The "C"  version states  that at age  65, the                                                                   
person who  worked from 10  years on,  would be covered.   He                                                                   
pointed out  that Mercer calculations  had not been  based on                                                                   
that.                                                                                                                           
                                                                                                                                
Representative Seaton  stressed there was a  large difference                                                                   
in the two  plans.  The  philosophical intent is to  create a                                                                   
plan more  like a defined contribution  plan (DCP).   The "C"                                                                   
version  clarifies that  the employee  would  loose their  10                                                                   
years DCP.   He  thought that  the health care  reimbursement                                                                   
and  the medical  plan  should work  together.   The  medical                                                                   
component  provides  an  insurance   plan,  covering  regular                                                                   
medical.   The  DCP becomes  dollars assigned  to a  personal                                                                   
account by the employee.                                                                                                        
                                                                                                                                
3:30:29 PM                                                                                                                    
                                                                                                                                
Representative  Croft  asked what  the interaction  would  be                                                                   
between the  HRA and the  medical-set-aside by  the employer.                                                                   
Representative Seaton explained  that the HRA provides money,                                                                   
which could  be used for  any qualified health  care expense.                                                                   
An  employee  could retire  at  60  and  use that  money  for                                                                   
covering their premiums.   That language is  not contained in                                                                   
the "C"  version, in  which the  person would  have to  be 65                                                                   
before they could receive medical benefits.                                                                                     
                                                                                                                                
3:31:58 PM                                                                                                                    
                                                                                                                                
Representative Croft asked if  at retirement age, there would                                                                   
be an account  covering ordinary items such  as premiums from                                                                   
another account.   Representative  Seaton explained  that the                                                                   
person would need to have major medical plan.                                                                                   
                                                                                                                                
3:33:04 PM                                                                                                                    
                                                                                                                                
Representative  Croft  inquired how  major  medical would  be                                                                   
different  from  the  current   available  medical  coverage.                                                                   
Representative Seaton replied  the major medical plan portion                                                                   
would be  the same.   The difference  is that presently,  the                                                                   
State pays 100%  and under the proposed plan,  there would be                                                                   
a cost share.  There would be  premiums paid by the employee.                                                                   
Under SB 141, there  would be no subsidy base.   He preferred                                                                   
the House State Affairs "X" version,  as it identifies future                                                                   
liabilities.                                                                                                                    
                                                                                                                                
3:34:43 PM                                                                                                                    
                                                                                                                                
Representative  Croft pointed  out the  change from  3.75% to                                                                   
1.75%,  representing how  much  of the  employees salary  was                                                                   
withdrawn    for    the    medical     care    reimbursement.                                                                   
Representative  Seaton  advised that  medical  is actually  a                                                                   
percentage  of the  salary.   The  health care  reimbursement                                                                   
account (HCRA),  because of  the federal anti  discrimination                                                                   
laws, is  based on  the average  salary of  the PERS  and TRS                                                                   
members.   They would have to  work as a unit payment,  2% of                                                                   
the  average salary  of those  people paid  by the  employer.                                                                   
The  employer is  the only  contributor  to the  HRA and  the                                                                   
medical.                                                                                                                        
                                                                                                                                
3:36:09 PM                                                                                                                    
                                                                                                                                
Representative Seaton added that  SB 141 allows new dependant                                                                   
coverage  after service.   He commented  that language  could                                                                   
potentially have a substantial  financial drain on the State.                                                                   
Given a person  employed at this time, that cost  in 30 years                                                                   
is estimated  to be  an average of  $54 thousand  dollars per                                                                   
year.     The  House   State  Affairs   STA  version   placed                                                                   
constraints,   identifying  such   things   as  adoption   of                                                                   
grandchildren.   It is  possible there could  be a  huge cost                                                                   
associated with  adoptions.  He  stressed that  healthcare is                                                                   
an expensive  item.   Healthcare has  been identified  as the                                                                   
most important item in the employee's retirement package.                                                                       
                                                                                                                                
3:38:14 PM                                                                                                                    
                                                                                                                                
Representative  Croft  thought  that  both  the  House  State                                                                   
Affairs  and  the  House  Finance   Committee  versions  used                                                                   
similar language.  He asked where  in the "C" version was the                                                                   
language  that addressed  the  issue of  dependent  children.                                                                   
Ms. Cunningham said on Page 26, Lines 5-7.                                                                                      
                                                                                                                                
3:39:05 PM                                                                                                                    
                                                                                                                                
Representative   Croft  asked   if  the   language  was   not                                                                   
satisfactory  because it did  not specify dependent  children                                                                   
at the  time of retirement.   Representative Seaton  said the                                                                   
language does not  indicate that the surviving  spouse or the                                                                   
dependent  children  had  any  relationship  to  the  working                                                                   
history  of  the employee.    He  thought  that would  be  an                                                                   
unfunded liability to the system.                                                                                               
                                                                                                                                
3:39:54 PM                                                                                                                    
                                                                                                                                
In response to a query by Representative  Croft pertaining to                                                                   
death  and disability  benefits  for peace  officers and  law                                                                   
enforcement agents, Ms. Cunningham  referenced Page 93, Lines                                                                   
21-23.    She  pointed  out the  language  was  intricate  to                                                                   
addressing benefits of a surviving spouse and dependents.                                                                       
                                                                                                                                
3:41:13 PM                                                                                                                    
                                                                                                                                
Representative  Seaton  thought there  was  a big  difference                                                                   
between a surviving spouse and dependent children.                                                                              
                                                                                                                                
Representative  Holm  questioned  the  concept  of  "a  great                                                                   
liability".   He pointed out that  most retirees do  not have                                                                   
dependent   children.     Survivor-benefits  are   different.                                                                   
Representative  Seaton referenced  the  escalation in  health                                                                   
care costs  and in  paying premiums;  the State  needs  to be                                                                   
careful  in what  is being  allowed with  situations such  as                                                                   
grandparents adopting  grandchildren and marriages  happening                                                                   
late in life.                                                                                                                   
                                                                                                                                
3:44:55 PM                                                                                                                    
                                                                                                                                
Representative Croft thought that  the "C" version was fairer                                                                   
and  asked   about  the   impacts.    Representative   Seaton                                                                   
commented  that  they  had requested  that  from  the  Mercer                                                                   
analysis.     Their  calculation  was  based   on  retirement                                                                   
directly from the system.  They  are presently reassessing it                                                                   
to determine  the projected  figures.  He  stated that  if it                                                                   
was a defined contribution program,  as far as the retirement                                                                   
benefit,  it would  not matter,  however,  a medical  benefit                                                                   
creates a risk.                                                                                                                 
                                                                                                                                
3:48:02 PM                                                                                                                    
                                                                                                                                
Representative Croft did not agree the concern was "huge".                                                                      
                                                                                                                                
Representative Seaton referenced  Page 2 of the comparison, a                                                                   
substantial change  to the "subsidy  by the system"  increase                                                                   
is  indicated.   Previously,  it increased  from  30% to  90%                                                                   
coverage by the  system.  It was changed to 30%  share by the                                                                   
retiree.    Under  the  House   State  Affairs  version,  the                                                                   
employer  would pay  30%,  which would  increase  by 3%  each                                                                   
year.   He  stressed  that the  proposed  structure was  very                                                                   
different.  Under  the "C" version, there would  be a minimum                                                                   
of a 70%  subsidy.  Both  the employers and  employees wanted                                                                   
more  benefits  to come  to  long-term  employees.   The  "C"                                                                   
version provides  for a  70% subsidy  after working  only ten                                                                   
years.                                                                                                                          
                                                                                                                                
3:51:19 PM                                                                                                                    
                                                                                                                                
Representative  Croft  was  confused   with  the  percentages                                                                   
proposed  and asked  clarification  if for  those working  10                                                                   
years,  the   employer  would   only  pay  30%   of  medical.                                                                   
Representative  Seaton   said  yes.    Representative   Croft                                                                   
understood that in the original  Senate version, the employee                                                                   
would   be    responsible   for   paying   out    only   30%.                                                                   
Representative  Seaton  acknowledged  it  had  been  a  large                                                                   
change.    A long-term  employee  receives  higher  coverage,                                                                   
creating a larger incentive to stay working in the system.                                                                      
                                                                                                                                
Representative  Weyhrauch  asked  how the  change  developed.                                                                   
Representative Seaton  did not know,  but thought it  was the                                                                   
result  of the  tier committee  structure.   The proposal  is                                                                   
similar to that of the State of Colorado.                                                                                       
                                                                                                                                
3:53:42 PM                                                                                                                    
                                                                                                                                
Representative Seaton spoke to  the health care reimbursement                                                                   
(HRA) arrangement  and hoped the arrangement would  act as an                                                                   
incentive for  employees to  want to come  back and  work for                                                                   
the State so as to receive the retirement package.                                                                              
                                                                                                                                
3:54:25 PM                                                                                                                    
                                                                                                                                
Representative Seaton explained  moving the window to 10-year                                                                   
HRA contribution change.  If an  employee left the system for                                                                   
move than 10-years, they would  loose their contribution.  He                                                                   
thought  the  action  would  act  as  an  incentive  for  the                                                                   
employee to  return to State  service.  Representative  Croft                                                                   
asked  about  the  difference  between  the  original  Senate                                                                   
version  and the House  State Affairs  "X" relationship  with                                                                   
the HRA.                                                                                                                        
                                                                                                                                
3:58:05 PM                                                                                                                    
                                                                                                                                
Representative Seaton referred  to consideration of the board                                                                   
members.   The "X" version does  not eliminate the competency                                                                   
requirements required  by the Governor.  He  commented on how                                                                   
the bargaining members would be elected.                                                                                        
                                                                                                                                
Representative  Croft asked about  language on Page  46, Line                                                                   
4, regarding  who could  be a  board member.   Representative                                                                   
Seaton replied that the House  State Affairs version provided                                                                   
for  one  member  with  no  association  with  PERS  and  TRS                                                                   
service, plus one member each from PERS and TRS.                                                                                
                                                                                                                                
4:02:11 PM                                                                                                                    
                                                                                                                                
Representative  Seaton expounded that  they wanted  the board                                                                   
terms to be as  political as possible.  The  "X" version went                                                                   
to six-year terms with a maximum of two consecutive terms.                                                                      
                                                                                                                                
4:05:15 PM                                                                                                                    
                                                                                                                                
Representative Hawker  voiced his gratitude for  all the work                                                                   
done by  Representative  Seaton and the  House State  Affairs                                                                   
Committee.  He pointed out that  the options presume a change                                                                   
to   a  defined   contribution   plan.     He   requested   a                                                                   
characterization of  the differences between the  "C" and the                                                                   
"X" versions.                                                                                                                   
                                                                                                                                
Representative Seaton  responded that the  proposed committee                                                                   
substitute does  not address potential unfunded  liability to                                                                   
the State.  Additionally, testimony  from employers indicates                                                                   
concern  regarding  rate  escalation.    The  retirement  and                                                                   
benefit  program has  one  purpose -  to  attract and  retain                                                                   
people.  Employees and employers  agree that medical benefits                                                                   
are the most  important aspect.  With a  defined contribution                                                                   
program, adequate funding is necessary.                                                                                         
                                                                                                                                
4:09:54 PM                                                                                                                    
                                                                                                                                
Representative  Hawker pointed  out  the challenge  resulting                                                                   
from escalating costs  driven by medical benefits.   He asked                                                                   
if  the   House  State   Affairs  Committee  had   considered                                                                   
alternatives to the issue.                                                                                                      
                                                                                                                                
4:11:36 PM                                                                                                                    
                                                                                                                                
Representative Seaton  said the Committee had  looked at tier                                                                   
models.   The State  is under  a severe constraint  regarding                                                                   
their  inability to  change the  benefit  package because  of                                                                   
constitutional obligations.                                                                                                     
                                                                                                                                
Representative  Hawker asked if  anything within  the defined                                                                   
benefit model had been considered,  such as a new tier and if                                                                   
that could  be incorporated into  the defined  benefit model.                                                                   
Representative Seaton responded  that the "X" version was not                                                                   
based  on a  defined contribution.    The HRA  portion is  an                                                                   
element of the defined contribution  plan, yet has aspects of                                                                   
the defined benefit model.                                                                                                      
                                                                                                                                
4:15:16 PM                                                                                                                    
                                                                                                                                
SENATOR BERT STEADMAN, SPONSOR,  added that there had been no                                                                   
change  to  the  contribution   formula  for  the  retirement                                                                   
portion.      He  discussed   the   conceptual   differences,                                                                   
addressing health  care and the board structure.   The Senate                                                                   
Finance version intended that  health care would be available                                                                   
during working years  and in retirement.  The  tier structure                                                                   
defines who  pays which costs.   He referenced Page  2 of the                                                                   
handout.   The  Senate  version would  be  more expensive  in                                                                   
dealing  with  post employment  health  care  with more  risk                                                                   
shifted to the employer after the age of 65.                                                                                    
                                                                                                                                
4:19:22 PM                                                                                                                    
                                                                                                                                
Senator  Steadman commented  on the 65-year  age portion,  at                                                                   
which time,  it is assumed that  person had been  an employee                                                                   
and had  30 years service, then  the State would pick  up 90%                                                                   
of the premium.   At that age,  the person is unlikely  to go                                                                   
back into the labor force and  at that age, health care costs                                                                   
should not  be shifted to the  employee.  Regardless  of what                                                                   
happens to  insurance growth rates  in retirement,  the State                                                                   
will pick up 90% of the amount  if the employee has worked 30                                                                   
years.   It makes no difference,  the split would be  90% for                                                                   
the State  and 10% to employee.   If the burden  were shifted                                                                   
to the employee, the employee  would not be able to cover it.                                                                   
An employee needs  their health insurance after  they retire.                                                                   
Before 65 years  of age, the Senate version  has the employee                                                                   
paying the premium.                                                                                                             
                                                                                                                                
Senator Steadman  continued, the Senate version  began with a                                                                   
1%, moving to  2%; the "C" version  has it at 3%.   That is a                                                                   
crafted benefit  to the employee;  it needs to  be attractive                                                                   
to the employee.  He did not recommend that it be lowered.                                                                      
                                                                                                                                
4:22:31 PM                                                                                                                    
                                                                                                                                
Senator Steadman  continued, the  cost of the  Senate version                                                                   
is a little  more for post employment health  care because of                                                                   
the way in which  it is handled after age 65.   He referenced                                                                   
the defined contribution plan.                                                                                                  
                                                                                                                                
4:23:43 PM                                                                                                                    
                                                                                                                                
Representative  Croft  asked  about  the  30-year  retirement                                                                   
system and how  that would affect employees  currently in the                                                                   
system.    Senator   Steadman  responded  that   the  changes                                                                   
proposed in  health care would  not be for the  current tiers                                                                   
and employees.   The defined  contribution would only  be for                                                                   
the new  tiers, coming  into the system  for the  first time.                                                                   
Currently, there  are no employees  in that tier.   The board                                                                   
would establish that rate.  The  Senate version established a                                                                   
five-year window after termination;  the "C" version extended                                                                   
that window to ten years.                                                                                                       
                                                                                                                                
Representative Croft  understood that the account  would have                                                                   
no significant liabilities for a long period of time.                                                                           
                                                                                                                                
4:25:26 PM                                                                                                                    
                                                                                                                                
Senator Steadman  clarified that there would  be no liability                                                                   
applied to  the health reimbursement  arrangement.   It would                                                                   
be  like   an  employer  funded   savings  account   for  the                                                                   
employee's health care costs.                                                                                                   
                                                                                                                                
4:25:54 PM                                                                                                                    
                                                                                                                                
Representative Croft pointed out  that the unfunded liability                                                                   
of  the current  system  would  continue.   He  asked if  the                                                                   
savings account  from the new tier  could be used to  pay off                                                                   
the unfunded liability.  Senator  Steadman said it could not.                                                                   
None  of  those  monies  can be  used  against  the  unfunded                                                                   
liability.  The  unfunded liability is the  responsibility of                                                                   
the employer.                                                                                                                   
                                                                                                                                
Representative  Croft questioned  how  the legislation  would                                                                   
fix the State's current problem.                                                                                                
                                                                                                                                
4:27:10 PM                                                                                                                    
                                                                                                                                
Senator  Steadman stated  that  the $5  billion dollar  under                                                                   
funding  was  not  intended  to   recapitalize  the  unfunded                                                                   
liability.   That  is  a  separate concern.    Representative                                                                   
Croft misunderstood the intent.                                                                                                 
                                                                                                                                
4:27:47 PM                                                                                                                    
                                                                                                                                
Representative  Weyhrauch  inquired  if  the  intent  was  to                                                                   
establish a  benchmark for a  different class of  employee at                                                                   
the  Tier  4  level.    Senator   Steadman  said  yes,  while                                                                   
restructuring the board.                                                                                                        
                                                                                                                                
Representative  Weyhrauch pointed  out that  the "X"  version                                                                   
does not  address the  unfunded liability  and he thought  it                                                                   
could  create   a  separate  unfunded  liability.     Senator                                                                   
Steadman thought that was inaccurate.                                                                                           
                                                                                                                                
4:28:52 PM                                                                                                                    
                                                                                                                                
Senator Steadman explained that  the way in which an unfunded                                                                   
liability  results is  by not  funding or  under funding  it.                                                                   
There is  a liability  for an employee  that retires  for his                                                                   
health care insurance costs at  age 65.  That would be funded                                                                   
as the  plan moves forward.   It is  funded every year.   The                                                                   
magnitude of a  new tier and health insurance  costs that are                                                                   
required   for  the   employees   when  they   reach  65   is                                                                   
substantially different from what exists at this time.                                                                          
                                                                                                                                
Representative  Weyhrauch  questioned  the  divergence.    He                                                                   
asked  if the  State  needed  something more  than  statutory                                                                   
language  to create  a constitutional  requirement.   Senator                                                                   
Steadman  pointed out  that an under  funded mandate  already                                                                   
exists  and that  it was  misleading  to say  that the  State                                                                   
would  have  a  health  insurance   obligation  for  the  new                                                                   
employees at age 65 without having an unfunded liability.                                                                       
                                                                                                                                
4:31:18 PM                                                                                                                    
                                                                                                                                
Senator  Steadman commented  that the  only way  in which  to                                                                   
guarantee that  there was no  unfunded liability would  be to                                                                   
not offer  health insurance.   All  versions of the  proposal                                                                   
offer health insurance.                                                                                                         
                                                                                                                                
4:31:59 PM                                                                                                                    
                                                                                                                                
MILES  BARKER,  STAFF,  SENATOR  BERT  STEADMAN,  added  that                                                                   
because the  House Finance  Committee substitute  changed the                                                                   
medical contribution from 3.75%  to 1.75%, lowering it by the                                                                   
2% will  not pay  for the  medical benefit  currently in  the                                                                   
bill and is not a valid interpretation of the run numbers.                                                                      
                                                                                                                                
4:33:31 PM                                                                                                                    
                                                                                                                                
Senator Steadman added that the  benefit would be from age 65                                                                   
onward and  the split will  always be  80% for the  State and                                                                   
20% for the employee  to co-pay.  The "X" version  included a                                                                   
pre-65 requirement.                                                                                                             
                                                                                                                                
Senator  Steadman  discussed  the composition  of  the  board                                                                   
structure.  Currently,  the PERS and TRS boards  spend 80% of                                                                   
their time on appeals.  The appeal  process would be moved to                                                                   
an administrative area.  The current  board sets the employer                                                                   
contribution rate and accepts  the actuarial recommendations.                                                                   
The new board would  address those two items.   The new board                                                                   
would take care of assets and  monitor liabilities, balancing                                                                   
them with cost containments.                                                                                                    
                                                                                                                                
4:36:45 PM                                                                                                                    
                                                                                                                                
Senator Steadman  added that the there would  be professional                                                                   
standards required  of the board members and  that they would                                                                   
need to have a  more in depth understanding of  the impact of                                                                   
their decisions.   He noted that  there would be  three board                                                                   
members not from PERS and TRS.                                                                                                  
                                                                                                                                
4:38:45 PM                                                                                                                    
                                                                                                                                
Senator  Steadman added  that most  of the  members would  be                                                                   
from PERS and TRS.   He suggested there was  confusion in the                                                                   
"X"  version regarding  the  responsibilities  of the  board.                                                                   
Currently, there  are over 100,000  employees in  the current                                                                   
tier system.   When  the employer  [State of  Alaska] has  to                                                                   
meet such  an obligation,  they need a  "strong" seat  at the                                                                   
table, as it affects the State's good faith.                                                                                    
                                                                                                                                
4:40:20 PM                                                                                                                    
                                                                                                                                
Representative  Croft  asked  if  there  was  an  established                                                                   
interest  rate   for  the  defined  contribution.     Senator                                                                   
Steadman  explained that  the structure  would be similar  to                                                                   
the  Supplemental  Benefit  System   (SBS)  and  the  board's                                                                   
responsibility would  be to steer employees  toward financial                                                                   
success.                                                                                                                        
                                                                                                                                
4:43:12 PM                                                                                                                    
                                                                                                                                
Representative  Croft emphasize it  would be relevant  to the                                                                   
employee  if  the board  made  wrong  decisions as  it  would                                                                   
affect their retirement funds.                                                                                                  
                                                                                                                                
4:44:03 PM                                                                                                                    
                                                                                                                                
Senator  Steadman  agreed.   The  employee  should  have  the                                                                   
ability to influence the selection  in a defined contribution                                                                   
plan.   There is  no intent  to have  a defined  contribution                                                                   
plan  with  no  representation  from  the  employees  in  the                                                                   
investment  selections.    Representative  Croft  recommended                                                                   
that all employees should be on the board.                                                                                      
                                                                                                                                
Senator  Steadman noted  that  the Senate  Finance  Committee                                                                   
(SFC)  thought   that  the   structural  problem   should  be                                                                   
addressed first  and then  the new board  could come  back to                                                                   
the  Legislature with  cost control  recommendations to  deal                                                                   
with funding challenges.                                                                                                        
                                                                                                                                
4:46:11 PM                                                                                                                    
                                                                                                                                
Representative Croft  was confused how the State  intended to                                                                   
build up a savings account to  address the debt.  He asked if                                                                   
SB 141 did  not cure the current retirement  system financial                                                                   
debt,  what was  the solution.    Senator Steadman  indicated                                                                   
that  the first  matter  to address  was  a "structural  fix"                                                                   
because the  challenge is  so large.   After that,  the State                                                                   
could go after the $5.7 billion dollar debt concern.                                                                            
                                                                                                                                
4:48:18 PM                                                                                                                    
                                                                                                                                
Senator Steadman advised that  last year, the State lost $700                                                                   
million dollars while gaining 15% on their portfolio.                                                                           
                                                                                                                                
4:48:58 PM                                                                                                                    
                                                                                                                                
Representative  Hawker clarified that  the first  priority is                                                                   
the structural fix.   He asked if the State  knew for certain                                                                   
that the  past structural fixes  were not substantial  enough                                                                   
to address these concerns.                                                                                                      
                                                                                                                                
4:49:54 PM                                                                                                                    
                                                                                                                                
Senator Steadman pointed out that  Tier 1 is more challenging                                                                   
than  Tier 2  because it  is more  expensive.   The issue  is                                                                   
having a  defined benefit  plan that  is so "unmovable"  that                                                                   
the  State  cannot  respond easily  to  the  changing  market                                                                   
conditions.                                                                                                                     
                                                                                                                                
4:51:52 PM                                                                                                                    
                                                                                                                                
Representative  Hawker questioned  how "broken"  Tier 3  was.                                                                   
He pointed out  that the Committee does not  have the benefit                                                                   
of Mercer as a resource.  He questioned  how the Mercer group                                                                   
had been financed.  Senator Steadman  explained how the State                                                                   
secure Mercer,  paying roughly  $450 thousand dollars  a year                                                                   
for  that  service.   Representative  Hawker  recommended  it                                                                   
would be more  responsible for the Committee to  get a second                                                                   
opinion.                                                                                                                        
                                                                                                                                
4:54:35 PM                                                                                                                    
                                                                                                                                
Senator  Steadman offered  to  share Mercer's  findings.   He                                                                   
reported that  he has  used models other  than Mercer  and he                                                                   
assumed  that  the  other  findings  would  obtain  the  same                                                                   
results.    He  suggested that  distortions  come  into  play                                                                   
unless one point in time is used.                                                                                               
                                                                                                                                
4:57:27 PM                                                                                                                    
                                                                                                                                
Representative  Hawker discussed  the compounding numbers  in                                                                   
the  medical industry  could cause  serious  problems in  the                                                                   
future.   Senator Steadman pointed  out that on  the national                                                                   
level,  health care  costs are  excessive.   He  acknowledged                                                                   
that he could not  argue for a financial fix  of $5.7 billion                                                                   
dollars.  Representative Hawker  agreed, emphasizing that the                                                                   
problem  is the  medical cost  component.   Senator  Steadman                                                                   
related  the philosophical  position  of  the Senate  Finance                                                                   
Committee.                                                                                                                      
                                                                                                                                
5:00:42 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer advised  that Ms. Millhorn  was available  to                                                                   
provide the requested numbers.                                                                                                  
                                                                                                                                
5:01:06 PM                                                                                                                    
                                                                                                                                
Representative   Kelly    thanked   Senator    Steadman   and                                                                   
Representative  Seaton  for  their  hard  work.    He  voiced                                                                   
concern that if a new plan were  not adopted, then 15% of the                                                                   
Alaska workforce  would suffer.  He opined  that the versions                                                                   
before  the  Committee were  close  enough  to work  out  the                                                                   
differences.   He argued  that attracting  and attaining  new                                                                   
employees under the  new system could be done  and encouraged                                                                   
supporting a compromise between the two versions.                                                                               
                                                                                                                                
5:05:52 PM                                                                                                                    
                                                                                                                                
MELANIE  MILLHORN,  DIRECTOR,   DIVISION  OF  RETIREMENT  AND                                                                   
BENEFITS,  DEPARTMENT OF ADMINISTRATION,  offered to  provide                                                                   
data and answer any questions of the Committee.                                                                                 
                                                                                                                                
5:07:39 PM                                                                                                                    
                                                                                                                                
Representative  Croft  inquired   how  to  best  address  the                                                                   
current  $5.7  billion  liability.   Ms.  Millhorn  said  the                                                                   
defined  benefits plan  could  provide a  long-term  solution                                                                   
because the  employee contribution rate would  decrease after                                                                   
14  years.    The  25-year  amortized   schedule  would  help                                                                   
eliminate the  unfunded liability.   The proposed  plan would                                                                   
bring in  a new tier  and would deal  with the volatility  of                                                                   
investment returns and health care costs.                                                                                       
                                                                                                                                
Representative  Croft understood  that  the assets  collected                                                                   
from the defined  contribution would be used to  pay off what                                                                   
is currently  owed.   Ms. Millhorn  explained that  the money                                                                   
would come from  the employer.  The employer  would be paying                                                                   
for the  past service cost of  the unfunded liability.   They                                                                   
own that  obligation.  The new  tier would solve  the problem                                                                   
by  paying off  the past  service  rate.   She described  the                                                                   
expectations of the new plan.                                                                                                   
                                                                                                                                
5:11:32 PM                                                                                                                    
                                                                                                                                
Representative  Croft  interjected   that  it  would  not  be                                                                   
eliminated, only transferred.                                                                                                   
                                                                                                                                
5:12:04 PM                                                                                                                    
                                                                                                                                
ROSE    KALAMARIDES,    (TESTIFIED    VIA    TELECONFERENCE),                                                                   
ADMINISTRATOR  FOR  TEAMSTERS   MEDICAL  &  RETIREMENT  PLAN,                                                                   
ANCHORAGE, clarified  that SB 141 would not impact  her.  She                                                                   
recommended that  there be a distinction between  funding for                                                                   
the retirement plan  and the medical plan.   She thought that                                                                   
the  benefit package  for retirees  under  the proposed  plan                                                                   
still appears  "generous" compared  with that of  the private                                                                   
sector.                                                                                                                         
                                                                                                                                
Ms.  Kalamarides  commented  that   it  should  be  carefully                                                                   
considered whether  the State wants to change  the retirement                                                                   
benefits for  public employees  from a  defined benefit  to a                                                                   
defined  contribution plan.    The funding  issues should  be                                                                   
separated from the costs of the medical benefits.                                                                               
                                                                                                                                
Ms.  Kalamarides suggested  that  the risk  was simply  being                                                                   
shifted  from the  employer to  the employee.   In a  defined                                                                   
benefit plan, the  risk is smoothed out.  Most  people do not                                                                   
have enough information to make good investment choices.                                                                        
                                                                                                                                
5:15:47 PM                                                                                                                    
                                                                                                                                
Ms. Kalamarides  cautioned that  the Legislature  should look                                                                   
at what  the private sector  is doing with retirement  health                                                                   
plans.  She  recommended leaving the defined  benefit plan in                                                                   
place for  future hirees,  as it  would attract better  State                                                                   
employees.   Most  teachers would  pick  the defined  benefit                                                                   
plan over a defined contribution plan.                                                                                          
                                                                                                                                
Ms. Kalamarides applauded the  work done by the House and the                                                                   
Senate.    She stated  that  ultimately,  the decision  is  a                                                                   
philosophical one  regarding what  type of employer  does the                                                                   
State of Alaska  want to be.  She reiterated  that the health                                                                   
benefits  should be  a different  issue  from the  retirement                                                                   
plan.                                                                                                                           
                                                                                                                                
5:18:14 PM                                                                                                                    
                                                                                                                                
Co-Chair Meyer agreed  that there could be a  solution on the                                                                   
matter, acknowledging  the tremendous amount of  work done on                                                                   
the bill.                                                                                                                       
                                                                                                                                
Co-Chair  Meyer stated  that the  bill would  be placed  in a                                                                   
work   group  including   consultation  with   Representative                                                                   
Seaton,  Senator  Steadman and  Ms.  Millhorn.   SB  141  was                                                                   
placed   into   the   work   group   with   members:   Chair,                                                                   
Representative Kelly and with  members Representative Hawker,                                                                   
Representative    Weyhrauch    and   Representative    Croft.                                                                   
Representative Hawker maintained  that the task of addressing                                                                   
the  concerns would  be  a "huge  undertaking"  for the  work                                                                   
group to provide in two days.                                                                                                   
                                                                                                                                
5:21:38 PM                                                                                                                    
                                                                                                                                
SB 141 was HELD in Committee for further consideration.                                                                         
                                                                                                                                
5:22:03 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 5:22 P.M.                                                                                          
                                                                                                                                
                                                                                                                                

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