Legislature(2003 - 2004)
02/21/2003 03:15 PM House L&C
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 21, 2003
3:15 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Carl Gatto
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
Representative Bob Lynn, Vice Chair
Representative Nancy Dahlstrom
COMMITTEE CALENDAR
HOUSE BILL NO. 91
"An Act relating to a cost-of-living allowance and medical
benefits for retired peace officers after 20 years of credited
service."
- MOVED HB 91 OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 91
SHORT TITLE:RETIRED PEACE OFF.COLA/MEDICAL BENEFITS
SPONSOR(S): REPRESENTATIVE(S)ANDERSON
Jrn-Date Jrn-Page Action
02/12/03 0185 (H) READ THE FIRST TIME -
REFERRALS
02/12/03 0185 (H) L&C, FIN
02/21/03 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
MICHAEL FOX
Public Safety Employees Association (PSEA)
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 91, presenting
data and anecdotes on the retention and retirement of peace
officers under the PERS Tier II system.
BRIAN WASSMANN, Sergeant
Division of Alaska State Troopers
Department of Public Safety
Delta Junction, Alaska
POSITION STATEMENT: Testified in favor of HB 91, describing the
pressures unique to his work in rural Alaska; answered questions
about shift differentials and overtime.
MIKE COUTURIER
Anchorage Police Department Employees' Association
Anchorage, Alaska
POSITION STATEMENT: Speaking in support of HB 91, described
recruiting pressures on Alaska law enforcement officers.
GUY BELL, Director
Division of Retirement & Benefits
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Answered questions about the department's
fiscal note on HB 91 and how employer contributions to PERS are
calculated.
ACTION NARRATIVE
TAPE 03-10, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 3:15 p.m. Representatives
Anderson, Gatto, Crawford, and Guttenberg were present at the
call to order. Representative Rokeberg arrived as the meeting
was in progress.
HB 91-RETIRED PEACE OFF.COLA/MEDICAL BENEFITS
Number 0116
CHAIR ANDERSON announced that the only order of business would
be a hearing for HOUSE BILL NO. 91, "An Act relating to a cost-
of-living allowance and medical benefits for retired peace
officers after 20 years of credited service."
CHAIR ANDERSON, as sponsor of HB 91, testified that the bill
provides parity of employee medical benefits and enhances the
retention of peace officers. He explained that the normal state
employee retirement is 30 years, at which time medical benefits
are immediately activated. The normal peace officer retirement
is 20 years, but medical benefits are not available immediately.
They are withheld until the person works an additional 5 years
or reaches the age of 60 years. House Bill 91 corrects the
delay by allowing peace officers to receive their medical
benefits upon normal retirement, as other Public Employees'
Retirement System (PERS) recipients do.
CHAIR ANDERSON also noted that the bill addresses the Alaska
cost-of-living allowance (COLA) for peace officers. This COLA
would be activated after 20 years of service, rather than at age
65 under the current statute. He explained that with this
adjustment, retired peace officers would have an incentive to
remain in Alaska, where they would continue to contribute to the
public good.
Number 0238
MICHAEL FOX, Public Safety Employees Association (PSEA),
identified himself as a retired Alaska State Trooper living in
Juneau who had worked in the Division of Fish & Wildlife
Protection, Department of Public Safety. He'd retired in 2000
after 22 years of service as a Tier I employee.
The committee took an at-ease from 3:20 p.m. to 3:22 p.m.
MR. FOX presented background on HB 91 in a PowerPoint
presentation [hard copy in members' bill packets]. He
reiterated that HB 91 amends state law to grant medical benefits
and a cost-of-living allowance to peace officers after 20 years
of service at normal retirement. This bill applies to people
hired under Tier II or III of PERS.
CHAIR ANDERSON reported that the bill covers peace officers,
firefighters, chiefs of police, regional public safety officers,
correctional officers, correctional superintendents, probation
officers, and fire chiefs.
Number 0470
REPRESENTATIVE GATTO asked if a Tier I employee is the same as a
Plan I employee in the Anchorage Fire Department.
CHAIR ANDERSON suggested asking Guy Bell, Director, Division of
Retirement & Benefits, Department of Administration, when he
testifies today.
MR. FOX quoted the mission statement of the Public Employees'
Retirement System: "On January 1, 1961, the Alaska legislature
established the Public Employees' Retirement System (PERS) to
attract and retain qualified people into public service
employment." He explained that Tier I employees were hired
between 1961 and the end of June 1986, and the COLA and medical
benefits available upon retirement were very generous during
those years. In 1986, the legislature passed HB 252 and created
Tier II in PERS. For employees hired under Tier II, COLA was
payable at age 65 and major medical benefits took effect at age
60. In 2001, the passage of HB 242 partially restored medical
benefits to retired peace officers, but only if they worked 5
extra years beyond their 20-year retirement.
Number 0660
MR. FOX answered a question from Representative Gatto,
explaining that state law pays COLA to benefit recipients who
are aged 65 and over. A peace officer must meet two conditions:
be at least 65 and retire after 20 years of service.
Number 0729
MR. FOX stated that the Department of Administration fiscal note
[projects a cost of] $1,224,000 annually, funded by a 0.18
percent increase in the employer's contribution. He explained
how the State of Alaska employer contribution for peace officers
has varied over the years. It reached its highest level in 1994
at 17.22 percent, and declined to 7.1 percent through 2003. The
proposed increase of 0.18 percent would raise the employer
contribution of 8.42 percent for the year 2004 to 8.6 percent.
For a person with a $55,000 salary, an 0.18 percent increase
would cost the employer $99.
MR. FOX said current law undermines the intent of the peace
officers' 20-year retirement because it denies them medical
benefits unless they work an extra 5 years. He said this
feature inhibits recruitment and lowers morale. Mr. Fox
referred to a graph that illustrates the turnover for troopers,
corporals, and sergeants in the Alaska State Troopers for the
past 21 years. After 12 years of state service, 50 percent are
working and 50 percent have either separated or been promoted.
In the first 8 years of service, he said, the retention rate has
been steady, but starting at 10 years of employment there has
been a decline.
MR. FOX presented another chart that depicted the number of
Alaska State Troopers, corporals, and sergeants. Some 237
troopers out of 315 total have less than 10 years' experience in
the job. He said there's a dramatic dropout of troopers after
10 to 15 years of service.
Number 1009
CHAIR ANDERSON commented that the Public Safety Employees
Association credits these separations to transfers to other
federal or local agencies, the private sector, or simply leaving
law enforcement completely. He added that PSEA attributes the
majority of these separations to dissatisfaction with benefits.
MR. FOX said PSEA staff found that the younger troopers were
enthusiastic about their jobs; many didn't even know what their
retirement benefits were. When troopers have worked 8-10 years,
however, they start looking into their future. He said when
troopers are in their early thirties, other job opportunities
come along because they are well trained, well educated, and
good employees.
Number 1105
CHAIR ANDERSON commented on the high burnout rate for law
enforcement employees.
MR. FOX confirmed that the policy of the 20-year retirement is
related to this higher burnout rate. He said 20 years is the
standard retirement for peace officers and firemen in the
federal government and in other states. Mr. Fox described the
results of his personal poll of a number of state troopers. He
said he'd asked whether they would serve out their 20 years and
whether that probability would increase if medical benefits and
COLA were available at a 20-year retirement. Fifty percent
responded that they'd make it to 20 years; if the benefits were
changed, troopers said there was a 80 to 90 percent chance that
they'd stay through their 20 years.
Number 1301
REPRESENTATIVE GATTO asked whether other workers such as
teachers, custodians, and ferry workers experience career
burnout.
MR. FOX replied that many teachers experience a similar burnout,
but that he couldn't speak to other occupations.
Number 1378
MR. FOX said PSEA looked at the costs of recruiting and training
peace officers. He said PSEA asserts that if an employer can
retain employees beyond 6 years to the 20-year retirement, the
agency gets a better return on its training investment. Typical
recruitment is costly because it includes written testing, oral
and written exams with psychologists, polygraph tests, physical
agility and fitness testing, physical health exam, drug testing,
and extensive background investigations by applicant review
boards.
MR. FOX said standard training includes academy attendance and
field training. Specialized instruction is critical for
firefighters and policemen, and covers the use of helicopters
and boats, handling bombs, canine work, and dealing with
hazardous materials. When an agency loses employees, it loses
all the money it has invested in them, he added.
Number 1461
CHAIR ANDERSON noted that he'd requested information on training
costs from William Tandeske, the new commissioner of the
Department of Public Safety. He said Commissioner Tandeske
indicated he would provide this research as soon as possible.
Chair Anderson said it's important to weigh the costs of
recruiting and training new employees who fill the positions of
those who leave in the middle of their tenure for other jobs or
better benefits. He said the fiscal note carries a cost, but
it's important to measure this cost against training funds lost;
he suggested the result may be a wash or even a savings. Chair
Anderson said he hoped this information would be available to
the House Finance Committee when it considers HB 91.
Number 1507
MR. FOX explained why the 20-year retirement for peace officers
is standard across the country. As a police officer ages, the
person is compensated at a higher rate; there are increased
health problems and increased risk of injury, and low morale and
burnout are increasingly common. He said these factors are well
documented. One career problem for a peace officer is
illustrated in a chart of administration versus officer
positions. He said that in many careers, an employee can move
from rough-and-tumble fieldwork into the desk section, but this
is a limited option for most peace officers. For example, in
the Department of Corrections, 709 correctional officers work on
the floor of the prisons; in contrast, there are only 30
positions in administration. All of these employees are peace
officers, but the vast majority have jobs on the floor, which is
a very tough place to spend 25 years, he pointed out.
Number 1593
CHAIR ANDERSON emphasized that correctional officers would
benefit the most by HB 91.
MR. FOX continued explaining the administration-versus-officers
chart. He pointed out that to find less stressful work, a
person can move into an administrative position or leave the
agency completely.
MR. FOX commented on the broader benefits of paying retired
peace officers the COLA. When retired peace officers remain in
Alaska after retirement, they often use their experience and
training in security jobs and frequently do volunteer work. He
concluded by saying that current state law undermines the intent
of normal 20-year retirement for peace officers and inhibits the
PERS mission of recruiting and retaining peace officers in
public service. He said HB 91 restores a true 20-year
retirement to peace officers.
Number 1684
REPRESENTATIVE ROKEBERG asked about the fairness of peace
officers' receiving COLA immediately upon retirement, while
other retirees are required to wait until they are aged 65.
MR. FOX replied that he would be delighted if every employee
received Alaska COLA upon retirement. This bill addresses peace
officers, but he said he would favor an amendment that gave all
retirees COLA upon retirement.
CHAIR ANDERSON clarified that it would be good to retain firemen
and police officers in Alaska because of their specialized
emergency training and record of being law-abiding citizens. He
said he was not suggesting that they were more deserving than
other citizens.
Number 1739
MR. FOX mentioned that retired peace officers often fill
security positions on the Trans-Alaska Pipeline System.
CHAIR ANDERSON theorized that there are many retired peace
officers in the Alaska Air National Guard and the Alaska Army
National Guard.
Number 1784
REPRESENTATIVE ROKEBERG said the COLA is an incentive for former
state employees to remain in the Alaska, where the cost of
living is high. State law requires that a person has to be 65
years of age or older to qualify for COLA. He said he believes
this additional benefit should go only to people who are
actually retired and are limited in their ability to work and
make additional income. He observed that people who retire at
20 years are probably going to take other work.
Number 1837
MR. FOX replied that the COLA issue is a matter of retaining
retired peace officers - their skills and their paychecks - in
the state. If they are going to work, they will use their
skills somewhere, he surmised, either in Alaska or in some other
state.
REPRESENTATIVE ROKEBERG commented that he doesn't understand the
concept that extra-special people with extra-special talents
should be paid extra money. He said he objects to the practice
of accumulating multiple retirement benefits.
MR. FOX confirmed that most people who retire from peace officer
work find employment in some other area. From personal
observations, he said most retirees do seasonal or part-time
work, for example, oil pipeline jobs with month-on/month-off
schedules.
Number 2005
REPRESENTATIVE GATTO asked about the conflict in Mr. Fox's
statement that he'd retired to spend more time with his
children, while most peace officers pursue other jobs after they
retire.
MR. FOX explained that he's an exception to the pattern he'd
described for most peace officers.
Number 2042
CHAIR ANDERSON recounted Commissioner Tandeske's recent
presentation to the House Judiciary Standing Committee, during
which he'd described how difficult it is for law enforcement
agencies across the nation to recruit police officers,
correctional officers, and, to a lesser extent, firefighters and
paramedics; Commissioner Tandeske had stated that as budgets are
cut, agencies still have to offer incentives to recruit and
retain top-quality peace officers.
Number 2114
REPRESENTATIVE ROKEBERG asked how granting medical benefits at
20 years instead of 25 years would assist in recruitment
efforts. He said the testimony shows that people in the first
10 years hardly look at their retirement benefits.
Number 2178
REPRESENTATIVE GUTTENBERG explained that he has had a similar
experience in the construction field. As a high school student,
he started with a summer job, never imagining that he would
eventually retire from the construction industry. He said he
found that after 10 years in the industry, he was more likely to
stay until retirement if it was 10 years rather than 15 years
away.
MR. FOX described how a person starting a law enforcement job
"tries on" the profession. When there are tough experiences,
the person asks over and over again, "How long can I do this?"
After working 8 to 10 years, the person looks down the tunnel
and says, "I could make it 10, but I couldn't make it 15." He
said that's a very common decision for people in the middle of
their careers, because they're at an age where if they're going
to change careers, they've got to do it [soon].
Number 2257
REPRESENTATIVE CRAWFORD said he sees HB 91 as a means for the
legislature to retain highly trained individuals. As an
ironworker in his twenties, he said he was only concerned about
the size of his Friday paycheck; once in his thirties, however,
health and retirement benefits became a bigger factor in whether
he stayed in the field.
Number 2307
REPRESENTATIVE GATTO stated that after 10 years as a paramedic
in Anchorage, he was "fried." There was no way he was going to
work 10, 15, or even 5 more years. Fortunately, he said, he had
the opportunity to transfer to the Anchorage fire line. When he
finally retired, it wasn't because of burnout, but for other
reasons.
TAPE 03-10, SIDE B
Number 2344
REPRESENTATIVE GATTO asked whether the retention rate is
different for people who start their careers at different stages
of their lives. He said he was not convinced that HB 91 would
result in better retention of peace officers. He said people
jump ship on their jobs for a variety of reasons - better job
offers, divorce, or being tired of Alaska's climate - that have
nothing to do with the 20- or 25-year retirement issue.
Number 2258
MR. FOX clarified that the youngest age for starting a peace
officer career is in the mid-twenties, after the young recruit
has had a few life experiences. He described an unsolicited job
offer that he'd received while working in Valdez the year of the
Exxon Valdez oil spill. He said he turned down the pipeline-
security job because he qualified for a full retirement in 8
years. He said the 5 years added on to qualify for medical
benefits make a huge difference to a peace office when
considering such an offer.
REPRESENTATIVE GATTO questioned whether the state will benefit
from retaining a employee another 10 or 15 years if the person
doesn't like the job.
Number 2008
MR. FOX replied that this is a relevant question when an peace
officer has worked 20 years and considers another 5 years to
qualify for medical benefits. He has seen it many times, he
added: the worst employees stay because of fewer options,
whereas the good employees have better options and take them.
Number 1972
REPRESENTATIVE ROKEBERG asked Mr. Fox to clarify about restoring
the retirement benefit from 25 years to 20 years.
MR. FOX explained that Tier I peace officers all receive the
same benefits at 20 years that other employees receive with a
30-year retirement. When HB 242 passed two years ago, the
medical benefit was restored to the start of normal retirement
for other employees, but peace officers were required to work
another 5 years past their normal retirement to qualify for
medical benefits. He said troopers feel they have a 25-year
retirement because the medical benefit, which is such a major
part of the retirement package, is not available until then.
Number 1926
MR. FOX replied to a question from Chair Anderson, explaining
that many retired peace officers do background investigations
and provide various training services to the Department of
Public Safety on part-time or short-term contracts.
Number 1867
BRIAN WASSMANN, Sergeant, Division of Alaska State Troopers,
Department of Public Safety, noting that he has 10 years of
experience, described law enforcement as a rewarding career with
good pay. He said it's very demanding, however, and many
officers want to retire at 20 years. The availability of
medical benefits at 20 years is a huge incentive for him to stay
in the field. Many troopers work hours that the normal state
employees aren't working - weekends, swing shifts, graveyard
shifts - and must live in remote areas without the amenities
available to many Alaskan residents. He offered his belief that
HB 91 would increase the morale of peace officers and encourage
them to stay in law enforcement.
Number 1743
MR. WASSMANN answered questions from Representative Rokeberg
about pay adjustments for shift differentials and overtime. He
said the shift differential is 3 percent for a swing shift and
about 7 percent for shifts starting after 8 p.m. Overtime pay
depends on the area of the state and the time of year. He said
there is less overtime in urban stations and more in rural posts
where shifts last 10 hours a day and troopers are called back to
work on emergencies.
Number 1630
MR. WASSMANN, answering a question from Representative Rokeberg
about trooper salaries, said his post has a cost-of-living
increase, so he earns about $78,000 a year gross, including
overtime and shift differentials. The starting salary for a
trooper in the Palmer-Wasilla area is $40,000 to $45,000 a year.
Number 1590
MIKE COUTURIER, Anchorage Police Department Employees'
Association, testified that his union represents 317 sworn
officers and 150 nonsworn employees in the Anchorage Police
Department (APD). He is a patrol officer in downtown Anchorage
with 7 years of experience. Mr. Couturier explained that he is
a 20-year retired army officer who joined the police department
at age 38.
Number 1510
MR. COUTURIER explained that he'd set up the most recent
recruiting program for the APD. He said officers after 10 years
of service are not tired of being officers. He predicted that
they will remain officers but will move to the Lower 48, where
the weather and the benefits are better. He reported that there
has been active recruiting of APD officers and Alaska State
Troopers by representatives from Vancouver [Washington]; Tacoma,
Washington; San Diego, California; and Stockton, California. He
opined that if peace officers are certified, they can easily
move to new positions, go through a minimal field training
officer program, and be on their way to better benefits, better
pay, and better retirement benefits.
Number 1403
MR. COUTURIER explained that at one time, the Alaska State
Troopers and the APD were among the 5 or 10 top-paying agencies
in the U.S., but now rank in the 30s among comparable
jurisdictions. In 1994, the Municipality of Anchorage moved out
of the police and fire program Plans I, II, and III, and
enrolled its officers in PERS. Anchorage's benefits under
Tier II deteriorated significantly. He said his union supports
HB 91 because it wants to improve the retirement medical benefit
for purposes of recruiting and retention.
MR. COUTURIER noted that today's young peace officers have
laptop computers and access to the World Wide Web, and are being
bombarded with online, magazine, and telephone job offers. He
said there is a national shortage of police and fire
professionals, along with correctional officers, that this state
and every other state will have to address. To address it, he
said, the agency must be competitive.
MR. COUTURIER commented on the practice of collecting multiple
retirements. He said many in the field believe that if fellow
officers are willing to go through the high-impact career of
policing, firefighting, providing emergency medical services, or
guarding criminals, then they should be rewarded for it. He
said the state should reduce its costs by retaining those people
for the full term that they're available. He estimated that it
costs the APD about $100,000 to train and field a police officer
through its own academy and the first year on the job. He
reported that the APD is losing officers to West Coast cities
between 5 and 8 years into their careers.
Number 1211
MR. COUTURIER also noted that the APD is gaining state troopers,
partly because the state and Anchorage are both part of PERS.
As a larger city, Anchorage offers the advantage to troopers who
don't want to move around the state.
Number 1157
GUY BELL, Director, Division of Retirement & Benefits,
Department of Administration, offered to answer questions on his
department's fiscal note for HB 91.
Number 1119
REPRESENTATIVE ROKEBERG asked why the fiscal note has only an
asterisk in the fiscal year columns, but an annual cost of
$1,224,000.
MR. BELL replied that the asterisk was used because the
$1,224,000 cost of a change in the retirement system would be
spread among the personal-services line items of all state
agencies; it's not a cost to the Division of Retirement &
Benefits. He explained that it's money the state will need to
collect and pay to the retirement fund. He said roughly half of
the $1,224,000 would be general funds. The $13.45 million in
accrued liability for the 20-year period is collected by
increasing the employer's rate of contribution by 0.18 percent.
REPRESENTATIVE ROKEBERG asked whether this increase in
contribution applies to all the political subdivisions of the
state that participate in PERS.
Number 1047
MR. BELL replied that the increase to various political
subdivisions varies according to the number of peace officers
employed.
REPRESENTATIVE ROKEBERG asked why, under the Tier II
calculation, employers of peace officers pay 7.5 percent
compared with [6.7 percent for all] other employees.
Number 0947
MR. BELL replied that historically, employers of peace officers
have paid more than for other employees because peace officers
receive benefits sooner. The rate is higher because the money
is collected over a shorter period of time.
REPRESENTATIVE ROKEBERG asked if there would be any additional
cost to the employee for this increased benefit.
MR. BELL confirmed that the employee rate of contribution is
fixed in statute at 6.75 percent for a normal employee and 7.5
percent for a peace officer. If there's a change in benefits,
the impact is on the employer's rate of contribution.
Number 0870
REPRESENTATIVE ROKEBERG noted that there's no distinction
between the COLA and the medical benefit in the fiscal note. He
asked if there was a breakout between the two items when the
calculations were made.
MR. BELL replied that he'd asked the division's actuarial firm
about the relative weighting of the COLA to the medical benefit,
and was told it's about two-thirds medical benefits and one-
third COLA.
Number 0851
MR. BELL, in response to a question from Representative
Rokeberg, said the other half of the $1,224,000 - not the
general fund portion - consisted of CIP [capital improvement
project] receipts, federal receipts, and other agency receipts.
Number 0794
REPRESENTATIVE GUTTENBERG inquired as to the average age of
entry into the peace officer occupations.
MR. BELL replied that he didn't have that information but could
get it. He said the average age of retirement for a peace
officer is about age 52 or 53. He suggested the average age may
be different between a trooper and a correctional officer.
REPRESENTATIVE GUTTENBERG observed that 50 percent of the
$1,224,000 is about $600,000. He questioned whether it's
possible to determine a dollar value for the increased retention
of peace officers, the dollar savings for not having to train
new officers. He offered his understanding that the Division of
Retirement & Benefits doesn't calculate the training side of the
equation, but said he would find this an interesting number.
Number 0670
REPRESENTATIVE GATTO opined that money is being saved in
training, but that the long-term employees are being paid at a
higher rate. He said it might be difficult to dig out a number
that compares training dollars saved with increased salary costs
and the employer's higher contribution rate.
Number 0628
REPRESENTATIVE CRAWFORD reminded the committee that one person
testified that it costs $100,000 to train an Anchorage police
officer. He said retaining only a few troopers [for a $100,000
savings each] makes the $600,000 increased employer contribution
a bargain.
REPRESENTATIVE ROKEBERG asked Mr. Bell about the intent of the
COLA law: whether it is for older people who would be retiring
or for younger retirees [who plan to continue working in other
jobs while retired].
Number 0576
MR. BELL recounted the statutory history of PERS. Up until June
1986, anyone hired was eligible for COLA at retirement,
regardless of age. With Tier II, for people vesting in PERS
after June 1986, COLA took effect at age 65. He surmised that
rationales for this legislative decision included reducing the
cost of the retirement system and paying the COLA at the point
when retirees actually stop working and need the money.
REPRESENTATIVE ROKEBERG asked about the actuarial soundness of
PERS, given the state of the stock market for the last three and
a half years.
Number 0511
MR. BELL replied that Alaska's PERS has suffered serious
declines in value, as has every other pension fund in the
country. The division has requested an actuarial audit to make
sure that it is costing out these things appropriately. He said
the division had an analysis done of its investment-return
assumption to see if was reasonable. Mr. Bell said the system
is in good shape, but added, "We're in the wrong market."
Number 0425
MR. BELL explained how the PERS and TRS [Teachers' Retirement
System] boards set the employer contribution rate. The boards
set assumptions. Then the actuary uses those assumptions, looks
at the state's data, produces asset-liability modeling, and
presents an expected contribution rate that employers would be
required to pay two years hence, for example, for fiscal year
2005 (FY 05). The retirement boards individually consider this
information and then develop the employer rate. The boards will
hear from the actuaries in March and April, and in April will
set an employer rate for FY 05, the [fiscal] year beginning
July 1, 2004.
MR. BELL went on to say that under state law, the largest
increase that could occur in any one year would be 5 percent.
Currently, the state's rate averages 7.1 percent, so the largest
possible rate could be 12.1 percent, a substantial increase. He
said he didn't know whether the boards would increase the
employer contribution rate.
Number 0351
MR. BELL predicted that the relative funded status of the system
would decline. He said Alaska is unusual because it has a
pension benefit and a medical benefit, both of which are
prefunded through the valuation process. Alaska is the only
state retirement system in the country that prefunds its medical
benefit, a prudent thing to do, he noted. If it didn't prefund
the medical benefit, Alaska would be over 100 percent funded in
PERS. He explained that if Alaska shut the program down today,
it could pay 100 percent of all benefits that have been accrued
to date. Including the medical benefit liability, PERS will be
funded below 100 percent - he said it's not known how far below
100 percent coverage, but it could be substantial. Mr. Bell
said it's prudent to address a shortfall in the system over a
period of 25 years. He explained that the division uses very
long "time horizons" because markets can change, and it's
important to avoid knee-jerk reactions to short-term volatility.
Number 0279
CHAIR ANDERSON asked if there are any other groups that don't
receive medical benefits immediately upon retirement.
MR. BELL replied that [Tier II] teachers do not receive medical
benefits immediately upon retirement.
CHAIR ANDERSON asked Mr. Bell to reiterate on the record the
purposes of offering a COLA or a medical benefit.
MR. BELL responded that the purpose of offering medical benefits
and COLA is very clear in the statute: to attract and retain
qualified public employees.
Number 0190
REPRESENTATIVE ROKEBERG asked about the employer contribution
rate for the FY 04 budget.
MR. BELL replied that the FY 04 contribution rate is based on
the surplus that had been built up over the good times. There
was a very small increase in retirement system rates from FY 03
to FY 04, less than a 0.5 percent increase overall for the
state.
REPRESENTATIVE ROKEBERG asked Mr. Bell if he thinks there will
be a serious increase in the employer contribution rate in
FY 05.
MR. BELL replied that that decision is up to the [PERS and TRS]
retirement boards. He estimated, in further reply, that an
increase in the employer contribution rate could range from 0 to
5 percent. He calculated that a 5 percent increase on a $680
million personal-services budget would be roughly $30 million,
with half that, or $15 million, being GF [general fund].
TAPE 03-11, SIDE A
Number 0009
REPRESENTATIVE ROKEBERG remarked that Alaskans shouldn't be
surprised that there will be recommended funding increases in
PERS, because Alaska is in the same boat as the private
companies that are having trouble funding their pension plans.
Number 0027
MR. BELL agreed and said other states are having similar
problems. He said the State of Arizona is looking at increasing
its employer rate by 5 percent starting in July. And some
states are reacting more strongly. He said Alaska was in a
healthy position to begin with, whereas some systems were
already underfunded when the [stock] market was way up. And now
that there's been a significant decline, they're in much worse
shape than Alaska.
REPRESENTATIVE ROKEBERG said the goal of HB 91 is laudable and
that it's important to honor peace officers who put their lives
on the line every day. He said he wants to help with the bill,
but it's going to be very difficult to fund it. He asked Mr.
Fox whether he would consider removing the COLA provision from
the bill if it gives the medical provision a better possibility
of passage.
Number 0215
MR. FOX replied yes, that if the choice were medical benefits
with no change in the COLA, that would be acceptable. He said
the medical benefits are much more important than the COLA to
the peace officers of the state.
REPRESENTATIVE ROKEBERG explained that he is not going to offer
an amendment at this point.
MR. FOX said the PSEA would be receptive to an amendment
removing the COLA from HB 91.
Number 0309
REPRESENTATIVE ROKEBERG said he was extremely concerned with Mr.
Bell's comments about increases in the employer contribution to
the payroll system, even without HB 91's change to PERS. He
said he sees the fiscal "train wreck" coming, and that the costs
of this bill add to the problem.
REPRESENTATIVE CRAWFORD recalled that Mr. Bell had talked to the
committee before about these issues. He said legislators know
the train wreck is down the road.
CHAIR ANDERSON commented that when the train wreck happens,
citizens will want firemen and police there.
REPRESENTATIVE GUTTENBERG remarked that he would prefer to see
Alaska's retired peace officers patrolling the oil pipeline and
other facilities. He said that's what COLA represents.
Number 0486
REPRESENTATIVE GUTTENBERG moved to report HB 91 out of committee
with individual recommendations and the accompanying fiscal
note. There being no objection, HB 91 was reported from the
House Labor and Commerce Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:00 p.m.
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