Legislature(2013 - 2014)BARNES 124

03/07/2014 03:15 PM LABOR & COMMERCE

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Heard & Held
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                         March 7, 2014                                                                                          
                           3:19 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Kurt Olson, Chair                                                                                                
Representative Lora Reinbold, Vice Chair                                                                                        
Representative Mike Chenault                                                                                                    
Representative Charisse Millett                                                                                                 
MEMBERS ABSENT                                                                                                                
Representative Bob Herron                                                                                                       
Representative Dan Saddler                                                                                                      
Representative Andy Josephson                                                                                                   
Representative Craig Johnson                                                                                                    
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 247                                                                                                              
"An  Act   relating  to  the  Protective   Occupation  Retirement                                                               
Council; relating  to participation  of certain employees  in the                                                               
defined  benefit and  defined contribution  plans  of the  public                                                               
employees'  retirement system;  and  providing  for an  effective                                                               
     - HEARD & HELD                                                                                                             
HOUSE BILL NO. 316                                                                                                              
"An Act relating to workers' compensation fees for medical                                                                      
treatment and services; relating to workers' compensation                                                                       
regulations; and providing for an effective date."                                                                              
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 247                                                                                                                  
SHORT TITLE: PEACE OFFICER/FIREFIGHTER RETIREMENT                                                                               
SPONSOR(s): REPRESENTATIVE(s) HOLMES, MILLETT, LEDOUX                                                                           
01/21/14       (H)       PREFILE RELEASED 1/17/14                                                                               
01/21/14       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/21/14       (H)       L&C, FIN                                                                                               
03/07/14       (H)       L&C AT 3:15 PM BARNES 124                                                                              
BILL: HB 316                                                                                                                  
SHORT TITLE: WORKERS' COMPENSATION MEDICAL FEES                                                                                 
SPONSOR(s): LABOR & COMMERCE                                                                                                    
02/19/14       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/19/14       (H)       L&C                                                                                                    
03/07/14       (H)       L&C AT 3:15 PM BARNES 124                                                                              
WITNESS REGISTER                                                                                                              
REPRESENTATIVE LINDSEY HOLMES                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as one of the joint prime                                                                      
sponsors of HB 247.                                                                                                             
GRACE ABBOTT, Staff                                                                                                             
Representative Lindsey Holmes                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Explained the changes to HB 247, Version U,                                                              
on behalf of one of the joint prime sponsors of HB 247,                                                                         
Representative Lindsey Holmes.                                                                                                  
MICHAEL BARNHILL, Deputy Commissioner                                                                                           
Department of Administration (DOA)                                                                                              
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Responded to questions during discussion of                                                              
HB 247.                                                                                                                         
TOM WESCOTT, President                                                                                                          
Alaska Professional Fire Fighters Association (AKPFFA)                                                                          
Eagle River, Alaska                                                                                                             
POSITION STATEMENT:  Testified during the discussion of HB 247.                                                               
WILLIAM FORNIA, Consultant;                                                                                                     
President, Pension Trustee Advisors                                                                                             
Denver, Colorado                                                                                                                
POSITION STATEMENT:  Testified during the discussion of HB 247.                                                               
ANNA LATHAM, Staff                                                                                                              
Representative Kurt Olson                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on behalf of the sponsor, House                                                                
Labor & Commerce Committee, Representative Kurt Olson, Chair, on                                                                
HB 316.                                                                                                                         
JOHN BITNEY, Lobbyist                                                                                                           
Alaska Surgery Center                                                                                                           
Palmer, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the discussion of HB 316.                                                               
DAVIS PETERSON, Orthopedic Surgeon;                                                                                             
President, Alaska State Orthopaedics Society                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 316.                                                               
SALLIE STUVEK, Human Resources Director                                                                                         
Fairbanks North Star Borough (FNSB)                                                                                             
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 316.                                                                          
DAVE JONES, Assistant Superintendent                                                                                            
Kenai Peninsula Borough School District (KPBSD)                                                                                 
Soldotna, Alaska                                                                                                                
POSITION STATEMENT:  Testified in support of HB 316.                                                                          
JULIE CISCO, Risk Manager                                                                                                       
Kenai Peninsula Borough School District (KPBSD)                                                                                 
Soldotna, Alaska                                                                                                                
POSITION STATEMENT:  Testified in support of HB 316.                                                                          
DAVE KESTER, Self                                                                                                               
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 316.                                                                          
CHUCK BRADY, President                                                                                                          
Workers' Compensation Committee of Alaska (WCCA);                                                                               
Manager, Workers' Compensation                                                                                                  
Arctic Slope Regional Corporation                                                                                               
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 316.                                                                          
RACHEL PETRO, President; Chief Executive Officer                                                                                
Alaska State Chamber of Commerce (Alaska Chamber)                                                                               
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 316.                                                               
SARAH LEFEBVRE, Staff                                                                                                           
Exclusive Paving and University Redimix;                                                                                        
Member; Alaska Workers' Compensation Board                                                                                      
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 316.                                                               
KAREN PURDUE, Chief Executive Officer; President                                                                                
Alaska State Hospital and Nursing Home Association (ASHNHA)                                                                     
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 316.                                                               
GREG MILLES, Physical Therapist (PT), WCC; Owner                                                                                
Home Town Physical Therapy                                                                                                      
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 316.                                                               
RUTH CARSON, Physical Therapist (PT)                                                                                            
Equinox Physical Therapy                                                                                                        
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 316.                                                               
WALTER PARRISH, Self                                                                                                            
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 316.                                                               
JULIANA AMENT, Physical Therapist (PT), DPT, MOMT; Owner                                                                        
North Pole Physical Therapy                                                                                                     
North Pole, Alaska                                                                                                              
POSITION STATEMENT:  Testified during the discussion of HB 316.                                                               
RICHARD COBDEN, Orthopedic Surgeon                                                                                              
Fairbanks Orthopaedic Center                                                                                                    
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 316.                                                               
DEBORAH MURSCH, Financial Director                                                                                              
Willow Physical Therapy                                                                                                         
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 316.                                                                       
ACTION NARRATIVE                                                                                                              
3:19:48 PM                                                                                                                    
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee  meeting  to  order  at   3:19  p.m.    Representatives                                                               
Millett, Chenault, Reinbold,  and Olson were present  at the call                                                               
to order.                                                                                                                       
          HB 247-PEACE OFFICER/FIREFIGHTER RETIREMENT                                                                       
3:20:00 PM                                                                                                                    
CHAIR OLSON announced  that the first order of  business would be                                                               
HOUSE  BILL  NO.   247,  "An  Act  relating   to  the  Protective                                                               
Occupation  Retirement  Council;  relating  to  participation  of                                                               
certain   employees   in   the  defined   benefit   and   defined                                                               
contribution plans  of the  public employees'  retirement system;                                                               
and providing for an effective date."                                                                                           
3:21:11 PM                                                                                                                    
REPRESENTATIVE  REINBOLD moved  to adopt  the proposed  committee                                                               
substitute (CS)  for HB 247, labeled  28-LS0726\U, Wayne, 2/4/14,                                                               
as the working document.                                                                                                        
CHAIR OLSON objected for the purpose of discussion.                                                                             
3:21:31 PM                                                                                                                    
REPRESENTATIVE   LINDSEY   HOLMES,  Alaska   State   Legislature,                                                               
testifying as a  joint prime sponsor, explained that  the goal of                                                               
HB 247 is to create a  possible plan for a more secure retirement                                                               
future for  public safety employees, specifically  for police and                                                               
fire employees.   The average hiring age for  police officers and                                                               
firefighters in Alaska is 31 years  of age with an average age at                                                               
retirement is  56 years of age.   Since the public  safety career                                                               
typically  represents a  shorter time  span it  can leave  people                                                               
less time in the system to  secure their retirement.  The defined                                                               
contribution  plans,  the  current   Tier  IV,  Public  Employees                                                               
Retirement  System (PERS)  definitely have  great benefits.   For                                                               
example,  state   employees  have  access  to   the  supplemental                                                               
benefits  system  (SBS),  which   helps  to  supplement  employee                                                               
retirement benefits.  Unfortunately,  the public safety employees                                                               
do not have SBS benefits,  which increase their retirement risks.                                                               
These  employees  have  what is  basically  considered  a  401(k)                                                               
program.   While their  plan has some  great advantages,  it also                                                               
has some risks.  This bill  would define a "hybrid" plan called a                                                               
Variable Benefit Retirement System  (VBRS), somewhere between the                                                               
Tier III defined benefit and  Tier IV benefit contributions plan.                                                               
This hybrid plan attempts to  provide reliance in future years on                                                               
social  benefit programs  and the  difficulty  in recruiting  and                                                               
retaining good  employees.  The  proposed plan has  some distinct                                                               
advantages and  efficiencies that go along  with defined benefits                                                               
such as the ability to  pool investment funds and achieve greater                                                               
returns  over  time.   Further,  this  plan  provides  additional                                                               
security  for  employees  during  their retirement  years.    The                                                               
hybrid plan  also has some  advantages of a  defined contribution                                                               
plan since it  greatly reduces worry of  unfunded liability (UL).                                                               
Thus the hybrid  plan provides more control and  security for the                                                               
state and  for employees.  Again,  people affected by HB  247 are                                                               
the  ones  that put  their  lives  on the  line  for  us and  the                                                               
legislature would like to take good care of them in return.                                                                     
3:24:08 PM                                                                                                                    
GRACE ABBOTT, Staff, Representative  Lindsey Holmes, Alaska State                                                               
Legislature,  on  behalf of  one  of  the joint  prime  sponsors,                                                               
Representative  Lindsey Holmes,  explained the  changes contained                                                               
in Version  U of  HB 247.   On page 1,  lines 5-14,  language was                                                               
added  to  permit  the Protective  Occupation  Retirement  (PORC)                                                               
Council to  adjust a monthly  cost-of-living allowance  (COLA) to                                                               
ensure the health of the VBRS plan from becoming underfunded.                                                                   
3:24:59 PM                                                                                                                    
MS. ABBOTT referred  to page 2, line 24, which  added language to                                                               
allow the governor to appoint a  member of the public at large to                                                               
serve on  the PORC to  broaden the representation of  the public.                                                               
She referred to  page [3], line 17, which provides  that the PORC                                                               
may reduce or  increase the annual medical stipend.   Finally, on                                                               
page  7,  lines  25-28,  it establishes  the  monthly  retirement                                                               
benefit  of the  protective  occupation  employees cannot  exceed                                                               
Tier III  benefit levels.   The only  other changes in  Version U                                                               
are conforming changes, she said.                                                                                               
3:26:05 PM                                                                                                                    
MS.  ABBOTT advised  members that  the bill  contains two  fiscal                                                               
notes from the Department of  Administration (DOA), Office of the                                                               
Commissioner and the DOA, Division of Retirement and Benefits.                                                                  
3:26:59 PM                                                                                                                    
MICHAEL    BARNHILL,   Deputy    Commissioner,   Department    of                                                               
Administration (DOA), referring to  the fiscal notes, stated that                                                               
the  first fiscal  note  is  the actuarial  note  on the  system.                                                               
Essentially, the  fiscal note  [dated 2/28/14  for the  Office of                                                               
the Commissioner,  DOA] represents  the actuarial analysis  of HB                                                               
247.   This  provides the  impact to  the state  in terms  of the                                                               
additional assistance  the state  would need  to pay  from Senate                                                               
Bill 125  from 2008, which starts  at $3.8 million and  grades up                                                               
to  $7.4 million  in  2020.   The  reason  for  this is  somewhat                                                               
complex; however, he  reported that the actuary  that worked with                                                               
the firefighters  agreed with state's  actuaries on  the figures.                                                               
The reason  for the impact relates  to the method the  state uses                                                               
to pay assistance  and past service cost in  the Public Employees                                                               
Retirement System (PERS).                                                                                                       
MR.  BARNHILL stated  the committee  may recall  the state  has a                                                               
very large  unfunded liability in  the PERS  in the amount  of $7                                                               
billion.   The state also  provides substantial  state assistance                                                               
to  municipalities in  paying  off the  unfunded  liability.   In                                                               
2008,  the state  capped the  employer contributions  rate at  22                                                               
percent,  which  is  the percentage  of  payroll  that  employers                                                               
contribute to  the PERS to  pay their share of  the contributions                                                               
to  fund their  eventual benefit.   However,  the actuarial  rate                                                               
fluctuates.   The  actuarial  rate  has been  in  the 30  percent                                                               
range, but  has risen to  44 percent for FY  15.  The  22 percent                                                               
employer contribution is  allocated in a number of  ways.  First,                                                               
the  defined benefit  normal cost  is estimated  at 6  percent of                                                               
payroll.    The second  allocation  is  for defined  contribution                                                               
costs  that the  employer contributes  on behalf  of the  defined                                                               
contribution employees, which contains a number of components.                                                                  
3:29:35 PM                                                                                                                    
MR. BARNHILL said that third,  the employer contributes 5 percent                                                               
of payroll, which  the employee can manage and  invest; fourth, 3                                                               
percent is deposited  to a health reimbursement  account that can                                                               
be used  to pay for  premium share  and deductibles.   Fifth, the                                                               
employer contributes  1.5 percent to major  medical contributions                                                               
to  the employee's  health care.    The remaining  amount is  the                                                               
employer  contribution  for  occupational death  and  disability,                                                               
which is  1 percent for police  and fire.  This  totals 9 percent                                                               
within  the 22  percent  that goes  to  the defined  contribution                                                               
normal  cost.    This  is   computed  on  basis  of  the  defined                                                               
contribution payroll only.   When it is computed on  the basis of                                                               
the total  payroll the  9 percent reduces  to 4  percent overall.                                                               
This  bill  would  remove  public safety  employees  out  of  the                                                               
defined  contribution plan  to  a Tier  V,  and the  contribution                                                               
costs  would increase  from  9  percent to  14  percent; with  12                                                               
percent  for  the non-peace  officer  staff.   Those  costs  will                                                               
increase  and  therefore  the  remaining  amount  within  the  22                                                               
percent, which normally goes to  past service costs decreases and                                                               
won't, means the state must pick up more past service cost.                                                                     
3:31:54 PM                                                                                                                    
CHAIR OLSON asked for  the effect if all the 42  or 43 percent of                                                               
the people in Tier IV that it would be significantly higher.                                                                    
MR. BARNHILL  answered yes;  that the state  will be  paying more                                                               
for this  portion of  the population within  the 22  percent cap.                                                               
Therefore, the  amount that goes  to past service  cost decreases                                                               
and the  state must pick those  costs up.  The  actuary estimates                                                               
that the  costs will start at  $3.8 million and increase  to $7.4                                                               
million over six years.                                                                                                         
3:32:32 PM                                                                                                                    
CHAIR  OLSON asked  whether  the sponsor  has  been contacted  by                                                               
other unions that would like to participate in this bill.                                                                       
REPRESENTATIVE  HOLMES   answered  that  there  have   been  some                                                               
inquiries as to the plan.                                                                                                       
3:32:55 PM                                                                                                                    
REPRESENTATIVE MILLETT referred  to the second fiscal  note.  She                                                               
asked for  the differences between  this fiscal note and  the one                                                               
for Senate Bill  141 [in 2005 Special legislative  session].  She                                                               
asked why  there would  be differences in  costs between  Tier IV                                                               
and Tier V.                                                                                                                     
MR. BARNHILL said he hasn't looked  at the fiscal note for Senate                                                               
Bill  141 in  some time;  however, this  proposal puts  employees                                                               
into two tiers  at the same time.  The  employees would remain in                                                               
Tier  IV  for the  purposes  of  placing credit  associated  with                                                               
overtime  into an  investment  account.   For  all other  credit,                                                               
contributions will go  into a defined benefit account  in Tier V.                                                               
Thus  the  DOA's  system  must  be  reprogrammed  to  accommodate                                                               
individuals  being in  two  tiers.   He  anticipated this  effort                                                               
would   require  a   substantial  amount   of  reprogramming   to                                                               
accommodate two tiers at once.                                                                                                  
3:34:12 PM                                                                                                                    
REPRESENTATIVE MILLETT  said the fiscal note  analysis is exactly                                                               
the  same  analysis.    She  highlighted  some  of  the  details,                                                               
including a request for cubicles.   She has asked the Legislative                                                               
Finance Division to check the figures.                                                                                          
MR.  BARNHILL  responded  that adding  an  additional  tier  will                                                               
require additional staff support to  administer the new tier, but                                                               
the fundamental difference  is that this bill  adds an additional                                                               
tier while leaving  the employees in the existing  tier, which is                                                               
different.   The state has never  had a pension plan  proposal in                                                               
which employees  are in  two separate tiers.   This  explains the                                                               
additional work plus it is  fundamentally different than anything                                                               
the legislature has considered in the past.                                                                                     
3:35:48 PM                                                                                                                    
REPRESENTATIVE  MILLETT found  it  odd  that additional  cubicles                                                               
would be necessary after the new space requirements.                                                                            
MR. BARNHILL  answered that he  wished he  could say it  would be                                                               
easy  to   administer  a  pension  plan;   unfortunately,  it  is                                                               
incredibly complex.   He said that  the data comes from  over 200                                                               
employers on  a daily basis.   Under this bill employees  come in                                                               
and out of  different tiers so a  secretary could be a  Tier V in                                                               
the  Department of  Public  Safety (DPS),  but  if the  secretary                                                               
transfers  to the  Department  of Law  (DOL),  the position  then                                                               
moves to Tier IV.   Thus, people move in and  out of tiers, leave                                                               
status,  and  employment  status  so the  department  must  track                                                               
eligibility  for  accuracy  to   correctly  compute  the  service                                                               
credit.  He maintained that the system is complex.                                                                              
3:37:08 PM                                                                                                                    
REPRESENTATIVE MILLETT related her  own service and asked whether                                                               
it is complicated  for DOA to track a Tier  II vested employee to                                                               
one with a Tier IV with a 401(k) plan.                                                                                          
MR.  BARNHILL  answered  that in  the  scenario  the  accumulated                                                               
service does  not go into two  different tiers at the  same time.                                                               
A peace officer at the DPS  earning overtime has earnings in Tier                                                               
IV and Tier V.                                                                                                                  
3:38:21 PM                                                                                                                    
REPRESENTATIVE  HOLMES interjected  that the  overtime is  put in                                                               
Tier V to avoid spiking.                                                                                                        
MR. BARNHILL  agreed the  reasons are sound  and he  doesn't have                                                               
any quarrel with the objective, but the process is complicated.                                                                 
3:38:39 PM                                                                                                                    
REPRESENTATIVE MILLETT  questioned the  $1.6 million  fiscal note                                                               
to readjust the computers.                                                                                                      
MR. BARNHILL answered that it is complicated.                                                                                   
3:39:14 PM                                                                                                                    
REPRESENTATIVE  CHENAULT referred  to the  other fiscal  note and                                                               
asked  whether the  actuarial has  performed computations  of the                                                               
costs of the program over time.   He noted that the program costs                                                               
double in five  years.  He asked  for costs over the  life of the                                                               
employees affected.                                                                                                             
MR. BARNHILL  believed the actuary has  done so.  The  cost for a                                                               
peace  officer and  firefighter would  be 14  percent of  defined                                                               
contribution payroll  that will  grow over  time, which  would be                                                               
compared to  the existing costs  of the  Tier IV population  - at                                                               
approximately 9 to  10 percent.  Thus, the  program increases the                                                               
cost for  9 to 10  percent to 14  percent for peace  officers and                                                               
firefighters,  although   the  DPS   staff  is  at   12  percent.                                                               
Certainly  the actuary  can "run  those numbers"  very easily  if                                                               
they haven't  already done so.   In response to Chair  Olson, Mr.                                                               
Barnhill said he would request  the figures.  In further response                                                               
to  a  question,  he  indicated that  Buck  Consultants  was  the                                                               
actuary the state used.                                                                                                         
3:41:22 PM                                                                                                                    
TOM  WESCOTT,   President,  Alaska  Professional   Fire  Fighters                                                               
Association,  (AKPFFA),  said  the  AKPFFA has  listened  to  the                                                               
defined benefits  versus the defined  contributions debate.   The                                                               
AKPFFA has  researched the issues,  and examined  some successful                                                               
plans, including Wisconsin and in  the State of Washington's laws                                                               
to find elements  of the plan that made it  successful.  The goal                                                               
was  to create  self-sufficient retires  who are  able to  exit a                                                               
physically strenuous career at an  appropriate time.  This led to                                                               
the Variable Benefit Retirement System (VBRS), he said.                                                                         
3:43:30 PM                                                                                                                    
MR.  WESCOTT reviewed  the plan  via  a PowerPoint  presentation.                                                               
Tier IV  has some areas that  are lacking in terms  of the police                                                               
and  firefighter   careers.    He   noted  Mr.   Barnhill  talked                                                               
extensively   about  the   employer's  22   percent  contribution                                                               
breakdown.   He  referred  to  the pie  chart  entitled "Tier  IV                                                               
Employer Contribution Breakdown."  Tier  IV has a 401 (k), health                                                               
retirement account, occupational death  and disability, and post-                                                               
Medicare health  insurance; however, the  big thing is  that Tier                                                               
IV  employee contributions  help pay  off the  unfunded liability                                                               
associated  with Tiers  I-III. The  Tier IV  participants do  not                                                               
participate in  Tiers I-III at all  and obtain no benefit.   This                                                               
creates some problems, he said.                                                                                                 
3:44:37 PM                                                                                                                    
MR. WESCOTT highlighted that  the average 31-year-old firefighter                                                               
or police officer who exits at 55  or 60 years of age will obtain                                                               
a 31 percent  income replacement in Tier IV,  which is compounded                                                               
since these  employees are not  participating in  social security                                                               
or the  Supplemental Benefits System.   Traditionally  the public                                                               
safety sector does not participate  in social security since they                                                               
typically  do  not  work  until   the  social  security  age  for                                                               
retirement.  Instead this sector  participates in pension systems                                                               
in which the funds are dedicated to early retirement.                                                                           
CHAIR OLSON  offered his belief  that approximately  90 political                                                               
subdivisions  participate  in  the social  security  system,  the                                                               
Public  Employees  Retirement  System  (PERS)  and  the  Teachers                                                               
Retirement System (TRS).                                                                                                        
MR.  WESCOTT agreed.   He  suggested that  Kenai, Anchorage,  and                                                               
Fairbanks are examples.                                                                                                         
CHAIR OLSON  acknowledged that  some opted out  at the  same time                                                               
but the Kenai Peninsula Borough  (KPB) and school district stayed                                                               
in.  He offered  his belief that the KPB is  the largest but some                                                               
small and medium sized towns  still participate.  He related that                                                               
the  cities opted  out for  various reasons.   He  suggested that                                                               
some  organizations,  such  as  the NEA  opted  out  since  their                                                               
employees  didn't want  to  pay  twice.   People  were young  and                                                               
didn't  think about  retirement so  often employees  requested to                                                               
opt out.   He further suggested that U.S.  Senator Lisa Murkowski                                                               
has worked for  years to allow communities  one additional chance                                                               
to participate; however,  he hasn't heard anything  recently.  He                                                               
offered  his belief  that "one  leg of  stool" is  gone for  many                                                               
3:46:46 PM                                                                                                                    
MR. WESCOTT  answered that Chair  Olson is correct.   Most people                                                               
opted out  when they were  covered under defined  benefit pension                                                               
plans.   That influenced their decision.   He did not  recall any                                                               
reconsideration when Tier IV was adopted.                                                                                       
3:47:14 PM                                                                                                                    
MR. WESCOTT turned to the  slide entitled "Tier IV Shortcomings."                                                               
He outlined  areas of improvements  to Tier  IV.  First,  Tier IV                                                               
individuals  lack  professional  money  management  services  and                                                               
employees must pay a fee for these  services.  All the risk is at                                                               
the individual level.   For example, the downturn  in the economy                                                               
in 2000-2003  and again  in 2008  can have  a shocking  effect on                                                               
retirement  savings.    The   VBRS  provides  professional  money                                                               
management services  in its  plan.   When Tier  IV was  built the                                                               
employer contributes five percent to  the employee's 401(k).  The                                                               
TIAA-CREF,    a    financial   services    institution,    issued                                                               
recommendations  for  best  practices  for  defined  contribution                                                               
plans.   Their recommendation was  for a 20  percent contribution                                                               
for individuals not  covered by social security.   He offered his                                                               
belief  that it  would need  to be  considerably more  for public                                                               
safety to account for shorter  careers.  He stated that currently                                                               
the contribution  is at 13  percent with 8 percent  from employee                                                               
contributions.   The health savings in  the [health reimbursement                                                               
account]  HRA  are not  projected  to  cover health  care  costs,                                                               
particularly  since this  population tends  to retire  earlier so                                                               
its  retirees will  need additional  pre-Medicare coverage.   The                                                               
market  corrections  are very  severe  on  the individual  level.                                                               
Finally,  due to  economies of  scale, funds  such as  the Alaska                                                               
Permanent Fund  and the Alaska Retirement  Management (ARM) Board                                                               
pay lower fees than individuals would pay.                                                                                      
3:49:49 PM                                                                                                                    
REPRESENTATIVE SEATON  asked whether  he was analyzing  this from                                                               
the perspective  that the  individuals control  their investments                                                               
instead  of the  [Supplemental  Benefits System  - Annuity  Plan]                                                               
(SBS AP) having to choose among market managers.                                                                                
MR. WESCOTT answered that employers  under Tier IV can make their                                                               
own investment  decisions.   Thus two  individuals with  the same                                                               
income  could  invest  in different  ways  and  obtain  different                                                               
retirement amounts  at the  end of their  careers.   For example,                                                               
individuals averse to risk might  select fixed income investments                                                               
and earn a lower rate of return.                                                                                                
REPRESENTATIVE  SEATON   asked  whether  he  was   talking  about                                                               
choosing  the   investment  strategy  not   selecting  individual                                                               
3:50:56 PM                                                                                                                    
MR.  WESCOTT   said  the  VBRS  adopts   the  professional  money                                                               
management similar to  the ARM Board, in  which professionals are                                                               
hired to manage the funds.                                                                                                      
3:51:17 PM                                                                                                                    
REPRESENTATIVE SEATON  expressed interest in whether  the options                                                               
are  the same  as the  SBS management  or if  he was  considering                                                               
individual investment or stock purchases that affect variables.                                                                 
MR. WESCOTT said he wasn't  completely familiar with SBS since he                                                               
doesn't  participate in  it; however,  under Tier  IV individuals                                                               
can choose a  host of mutual funds, but not  individual stocks to                                                               
make  their investments  or  they  can pay  to  have the  account                                                               
3:52:07 PM                                                                                                                    
MR. WESCOTT  outlined some consequences highlighted  in the TIAA-                                                               
CREF's  best  practices for  defined  contributions'  paper.   He                                                               
offered to provide that to the committee.                                                                                       
3:52:31 PM                                                                                                                    
MR. WESCOTT raised  the issue of the probability of  an aged work                                                               
force.    He  predicted  that   individuals  will  need  to  make                                                               
decisions to stay  or not based on financial  reasons.  Sometimes                                                               
the decisions are reasonable, but  when coupled with the physical                                                               
nature  of the  job and  the  stresses it  places on  individuals                                                               
employers can  expect workers' compensation  increases or  in the                                                               
worst  case  scenario  deaths.    This  sector  also  experiences                                                               
difficulty  in   recruitment  and   retention.     While  defined                                                               
contribution  plans are  gaining  in  popularity, nationwide  few                                                               
police  and fire  organizations are  subject to  strictly defined                                                               
contribution plans.   He  also predicted  that if  Alaska doesn't                                                               
craft its  defined contribution plan  correctly Tier  IV retirees                                                               
can possibly  become a burden to  the social welfare system.   He                                                               
said  this country  takes  care of  the elderly.    He related  a                                                               
scenario  in which  a Tier  IV employee  depleted his  retirement                                                               
funds  at 80  years of  age, without  any social  security funds,                                                               
means that society would need to  pick up the costs if the person                                                               
lives to be 88 years of age.                                                                                                    
3:54:12 PM                                                                                                                    
MR.  WESCOTT  stated  the  solution crafted  for  the  VBRS  plan                                                               
provides members  the distinct advantages  and efficiencies  of a                                                               
defined  benefit   plan  and  provides  the   state  with  fiscal                                                               
discipline  and   control  of   funding  similar  to   a  defined                                                               
contribution funding plan  with a flat rate.  He  pointed out the                                                               
VBRS requests the "14 and  12 percent" contributions Mr. Barnhill                                                               
discussed earlier  [Tier V employer  contributions in  the fiscal                                                               
MR. WESCOTT  stated that the  VBRS plan would be  managed without                                                               
additional  funding  by altering  benefits.    Thus, poor  market                                                               
experiences  would  result  in   diminished  benefits,  which  he                                                               
offered  to discuss  later;  however, a  portion  is variable  in                                                               
nature.    The  retiree's  advantages  under  this  plan  include                                                               
professional   money  management,   lower  fees,   and  long-term                                                               
investment strategies.   Individuals  with one career  who retire                                                               
in a  disastrous year,  such as  2009, can  experience disastrous                                                               
results whereas  participants in  a large  pool spread  the risk.                                                               
This  plan pools  the risk  among  the participants  of the  plan                                                               
instead at  the individual  level so  members receive  stable and                                                               
predictable retirement  income.  This doesn't  absolve members of                                                               
the responsibility  of saving in a  401(k) plan or a  457 plan to                                                               
supplement  their income.   Thus,  the VBRS  doesn't provide  100                                                               
percent  of income,  but it  provides one  stable plan,  which he                                                               
likened as returning "one leg of that stool."                                                                                   
3:56:16 PM                                                                                                                    
MR. WESCOTT  acknowledged the bill  is complicated.   He referred                                                               
to  the charts  entitled  "Public  [Employees] Retirement  System                                                               
(PERS)  and  Variable  Benefit   Retirement  System  (VBRS)  Plan                                                               
Comparison  Chart."   He explained  that started  with the  chart                                                               
used by  the Division of  Retirement and Benefits (DRB)  for Tier                                                               
III and added  a column for VBRS, listed benefits  and cited page                                                               
numbers in HB 247.                                                                                                              
MR. WESCOTT  explained the significant  differences in  the VBRS.                                                               
A  portion of  benefits are  guaranteed  and a  benefit level  is                                                               
targeted.   The plan  is designed to  provide Tier  III benefits,                                                               
but  has the  ability to  make  adjustments rather  than ask  the                                                               
employer for more money.                                                                                                        
3:58:01 PM                                                                                                                    
MR.  WESCOTT  outlined safeguards  of  the  VBRS.   For  example,                                                               
overtime does not count in  final calculations.  One problem with                                                               
some pension systems  is that overtime spiking  will occur during                                                               
the "high  three" years and  members retire on a  higher pension.                                                               
Under the VBRS  plan overtime contributions do  not count towards                                                               
retirement.     He  questioned  Mr.  Barnhill's   testimony  that                                                               
indicated employees  would participate  in two tiers  since there                                                               
is a  defined contribution component and  the variable component;                                                               
however,  the  only  contributions to  the  defined  contribution                                                               
account  would be  for overtime  to ensure  that overtime  is not                                                               
calculated in the final equation.   Additionally, the bill adds a                                                               
minimum of age  55 for public safety and 60  for other employees.                                                               
Under the old  PERS system, the retirement was based  on time and                                                               
the VBRS is based  on a 7 percent rate of return  as opposed to 8                                                               
percent, which is a more conservative rate.                                                                                     
3:59:41 PM                                                                                                                    
MR.  WESCOTT reviewed  the slide  entitled "Tools."   He  related                                                               
that employee  contributions are adjustable for  the post-pension                                                               
adjustment (PPA) and  cost of living adjustments  (COLA) based on                                                               
the funding  status of the  plan.  The  VBRS also has  a variable                                                               
benefit that it can award.   Lastly, the plan would guarantee the                                                               
2013 health care  premium.  The best way to  explain this is that                                                               
the plan  uses the 2013 figure  of $1,647 for health  care costs.                                                               
He projected  30 years from that  date and hoped the  costs would                                                               
be within the projected  amount, including inflation adjustments,                                                               
but  if not,  the plan  would  only pay  out based  on the  funds                                                               
available.   He pointed  out that the  PERS older  tiers promised                                                               
health care  regardless of cost.   This plan promises  a stipend,                                                               
he said.                                                                                                                        
4:01:00 PM                                                                                                                    
MR. WESCOTT turned  to the slide entitled "PERS  Tier III Benefit                                                               
Compared to  Variable Benefit."   He highlighted the  main change                                                               
is that  a 25  year employee retiring  would receive  57 percent;                                                               
whereas a  retiree under the  VBRS plan would receive  50 percent                                                               
with  a variable  7.5  percent.   He  indicated  the 7.5  percent                                                               
variable can  be adjusted to  reduce the  benefit.  The  COLA and                                                               
PPA adjustments  are also  a tool  to adjust  under the  VBRS, as                                                               
well as the health care costs previously mentioned.                                                                             
MR.  WESCOTT  turned  to  the   slide  entitled  "Private  Sector                                                               
Contributions".   He  compared the  total contributions  of Wells                                                               
Fargo,  Alaska  Airlines,  the   Alaska  State  Legislature,  and                                                               
recently modified police  and fire plans for other  states to the                                                               
VBRS.  He said, "You can look  at the numbers there.  We're right                                                               
in the ballpark."                                                                                                               
4:02:20 PM                                                                                                                    
MR.  WESCOTT  turned  to  the slide  entitled  "In  Closing"  and                                                               
emphasized  that  due  to  the   unique  nature  of  the  shorter                                                               
timeframe, lack  of SBS,  and social  security for  public safety                                                               
employees  and   firefighters,  that   Tier  IV   shortfalls  are                                                               
predicted.  He  suggested that the solution in  HB 247 represents                                                               
a compromise  and addresses many  legitimate concerns  and issues                                                               
that  people have  raised in  terms  of unfunded  liability.   He                                                               
hoped  to continue  to  work on  the VBRS  plan  and address  any                                                               
4:02:55 PM                                                                                                                    
REPRESENTATIVE   MILLETT  asked   whether   the  peace   officers                                                               
underwent a retention study and  examined the turnover rate since                                                               
passage  of Senate  Bill  141, and  prior to  the  change from  a                                                               
defined benefit to a defined contribution plan.                                                                                 
MR. WESCOTT  recalled reviewing  figures from  the ARM  Board and                                                               
from the  administration, although  he has  not seen  any current                                                               
figures.  He  deferred to the police department who  can speak to                                                               
the issues the police department is having.                                                                                     
REPRESENTATIVE  MILLETT   recalled  a  study  and   expressed  an                                                               
interest in knowing the retention  rate of public safety officers                                                               
since Tier IV was adopted.                                                                                                      
CHAIR OLSON  answered that  he can only  speak for  his district.                                                               
He   said  that   anecdotally   it  appears   that  the   younger                                                               
firefighters  and police  officers  like the  new  plan since  it                                                               
gives them portability, control, and vesting.                                                                                   
4:04:33 PM                                                                                                                    
REPRESENTATIVE  MILLETT expressed  concern  that the  portability                                                               
might  mean the  officers leave  so Alaska  would train  them and                                                               
they subsequently  leave the  state.  She  pointed out  that this                                                               
adds  a cost  to the  state that  has not  been considered.   She                                                               
highlighted that  training costs are extremely  expensive for any                                                               
public safety officer.  She  offered her belief that the training                                                               
academy  at Sitka  could  attest  to the  high  costs, which  she                                                               
believed were  over $100,000  per officer.   She  reiterated that                                                               
the  younger officer  might  like the  portability,  but it  also                                                               
means they are leaving the state.                                                                                               
4:05:10 PM                                                                                                                    
CHAIR OLSON  stated that the  exit interview asks why  people are                                                               
leaving.   Some  people  leave because  one  spouse doesn't  like                                                               
Alaska or  family members  in the Lower  48 have  medical issues.                                                               
He reiterated that  the retirement plan has not been  an issue in                                                               
his area.                                                                                                                       
REPRESENTATIVE MILLETT said  that she hears just  the opposite in                                                               
her  district.   In  her  experience  the younger  officers  have                                                               
indicated they came  [to Alaska] for training  and experience but                                                               
that the  401(k) plan  is insufficient.   She hoped  the training                                                               
costs will  also be  considered.   She appreciated  the anecdotal                                                               
information but would like statistical information, too.                                                                        
CHAIR  OLSON answered  that the  information  has been  requested                                                               
from Mr. Barnhill and Mr. Wescott.                                                                                              
4:06:42 PM                                                                                                                    
WILLIAM FORNIA, Consultant;  President, Pension Trustee Advisors,                                                               
stated that  he is a  credential actuary with  his own firm.   He                                                               
has  been hired  by Alaska  Professional Firefighters  Associates                                                               
and the  police union to  analyze this plan.   He stated  that he                                                               
testified previously before the  Alaska State Legislature as well                                                               
as  in  Colorado,  Utah,  Rhode Island,  New  Mexico,  and  North                                                               
Dakota,  as well  as  before  city councils.    He described  his                                                               
experience  as broad,  and  he works  for  labor unions,  pension                                                               
funds, city, and state governments.                                                                                             
4:08:13 PM                                                                                                                    
MR. FORNIA referred to page  2 of a presentation entitled "Alaska                                                               
Variable Retirement  Plan."   He said  he will  focus on  why the                                                               
plan change is necessary, the  proposed structure of the variable                                                               
retirement plan [VBRS], and he will give examples.                                                                              
4:09:03 PM                                                                                                                    
MR. FORNIA turned  to page 3 entitled "Why  is change necessary."                                                               
He acknowledged  that the previous  testifiers have  covered some                                                               
of the information already.   He directed attention to the police                                                               
and fire  column since most  of the employees affected  in Alaska                                                               
would fall  under this column.   The typical  hire age is  31 and                                                               
the  average retirement  age has  been 56  years of  age with  25                                                               
years of service.  Under the  old Tier III provisions the retiree                                                               
would  receive   a  benefit  of   57.5  percent  of  pay.     His                                                               
calculations, based on the 13  percent projected deposits to Tier                                                               
IV defined  contribution retirement  [DCR], would be  31 percent.                                                               
Basically, this  means a difference  in pay between Tier  III and                                                               
Tier IV retirees would be just  under half of the total benefits.                                                               
He turned  to the portability  issue discussed earlier,  and from                                                               
an actuarial  perspective the employee  could work in  Alaska for                                                               
5-6 years, then  go to Washington or Colorado and  join a defined                                                               
benefit plan, work  an additional 20 years and  retire under that                                                               
plan.  He characterized that  as strategically the smartest thing                                                               
to do,  so it doesn't  surprise him  that the younger  police and                                                               
firefighters like the  current plan.  However,  he predicted that                                                               
in 5-10  years when  they have  less future  time to  earn money,                                                               
they will not like it as much.                                                                                                  
4:11:17 PM                                                                                                                    
CHAIR OLSON  referred to page  3 and  asked Mr. Fornia  to extend                                                               
the graph  to add a  column for the  private sector to  provide a                                                               
broader-based perspective and comparison.                                                                                       
MR.  FORNIA offered  to do  so.   In response  to a  question, he                                                               
indicated that the  average private sector employee  would not be                                                               
a police  and firefighter employee so  it would be more  like the                                                               
first column.  He predicted  these employees would come in during                                                               
their mid-30s, would  work to ages 62-65, and would  not have any                                                               
pension so  there wouldn't be  a Tier III  row.  The  DCR benefit                                                               
would  be slightly  better, and  since they  were older  it would                                                               
likely result in  approximately 40 percent of pay.   He said what                                                               
has been  happening is that  these people are not  retiring since                                                               
they haven't saved up enough.   He offered to simulate retirement                                                               
at 62-65,  but he reiterated the  figures would likely be  in the                                                               
40 percent range.                                                                                                               
CHAIR OLSON said the committee will appreciate the figures.                                                                     
4:13:09 PM                                                                                                                    
MR. FORNIA  turned to slide 5,  with respect to DCR  health care.                                                               
He stated that  part of the Tier IV contributions  will go to the                                                               
DCR health  contribution account.   A person  who is hired  at 32                                                               
and is now 36 would need  8 additional years of service to retire                                                               
at  age 57  with 25  years of  service.   That retiree  will have                                                               
enough to  pay for 30  percent of  the health insurance  cost for                                                               
the member plus  spouse based on projections.   This retiree will                                                               
need  to find  additional sources  to  pay for  the remaining  70                                                               
percent of their health care costs.                                                                                             
4:13:59 PM                                                                                                                    
REPRESENTATIVE REINBOLD referred  to page 4 to  the final average                                                               
salary of  $80,000 and asked for  the number of years  of service                                                               
the salary represents.                                                                                                          
Mr.  FORNIA said  this would  be  for someone  retiring after  25                                                               
years in today's dollars.  He  did not recall whether the figures                                                               
were based  on actuals, but  the two left  hand bars for  Tier II                                                               
defined benefit and Tier IV  defined contribution were based on a                                                               
scale.   He said a lower  paid person would have  a higher social                                                               
security benefit relative to the other two columns.                                                                             
4:14:59 PM                                                                                                                    
MR. FORNIA explained that slide  5 demonstrates that pre-Medicare                                                               
costs would exceed  the contributions.  He outlined  the pros and                                                               
cons of  the defined benefit  and defined  contribution programs.                                                               
This  bill  is something  truly  in  between  and tries  to  take                                                               
advantages of each program and craft it into a plan.                                                                            
MR. FORNIA indicated that a  defined contribution plan provides a                                                               
more cost effective  way to pay for retirement  benefits.  First,                                                               
each individual  doesn't know the  length of time they  will live                                                               
so they hedge  living longer than average.   Thus, these retirees                                                               
tend to draw  down their accounts more slowly.   In a pooled plan                                                               
the actuary  can predict how  long the average person  will live.                                                               
Thus,  the actuary  can  predict  how many  people  will die  who                                                               
participate in the  pooled plan.  Under  the defined contribution                                                               
approach,  the typical  person dies  with some  balance left  for                                                               
their children; however,  he offered his belief that  this is not                                                               
an efficient use of the plan.   Thus, instead of paying a pension                                                               
benefit, it has the effect of paying a life insurance benefit.                                                                  
4:17:09 PM                                                                                                                    
MR. FORNIA said  the second advantage is that  as individuals get                                                               
older they can't take the  investment risk, whereas the ARM Board                                                               
can due to the long horizon.                                                                                                    
4:17:29 PM                                                                                                                    
REPRESENTATIVE SEATON asked for  clarification on the reasons the                                                               
defined benefit  plans will be  more cost effective.   He offered                                                               
his belief  that the  problem with the  defined benefit  plans is                                                               
that the  unfunded liability has  increased, which is  typical of                                                               
what  has happened  across the  country.   He  asked because  the                                                               
contributions to the plan are less than the payouts.                                                                            
MR. FORNIA  said that it  is cost effective  if it is  done right                                                               
and this  plan will be  structured appropriately.   Secondly, the                                                               
unfunded liability  would be  the same  for those  employees that                                                               
have been in  the defined contribution plan all  along.  However,                                                               
it would fall on  the backs of the workers, who  would not have a                                                               
guaranteed retirement and the retirees  that have overspent their                                                               
savings would not have much  left.  Thus, the unfunded liability,                                                               
which is now the responsibility  of the state and employer, would                                                               
either be deficits  for workers wishing to retire,  or would show                                                               
up  as  deficits  in  the  accounts of  those  who  have  already                                                               
4:19:07 PM                                                                                                                    
REPRESENTATIVE SEATON maintained  that he still did  not view the                                                               
defined benefit plan as being more cost effective for the state.                                                                
MR. FORNIA  answered that  the state  would not  provide adequate                                                               
retirement benefits for defined  contribution employees since the                                                               
state would  need to make  higher contributions.  He  pointed out                                                               
that  the   advantage  of  the  defined   contribution  plan  for                                                               
employers is  that there  isn't any  risk of  unfunded liability.                                                               
However, any shortfalls are shifted  to the employees.  Under the                                                               
current  state structure  for PERS  Tier  I, Tier,  and Tier  III                                                               
defined  benefit plans  is that  the  employees receive  adequate                                                               
retirement  benefits,  but  it   is  done  through  the  unfunded                                                               
liability costs.   He indicated  that in  order for the  state to                                                               
provide  an adequate  retirement through  a defined  contribution                                                               
program,  the state  would spend  the same  amount, but  it would                                                               
have needed  to contribute more  to employee  retirement accounts                                                               
4:20:43 PM                                                                                                                    
REPRESENTATIVE  SEATON  pointed  out  that  the  state  is  still                                                               
employing  people  and can  at  least  schedule  it in  and  make                                                               
decisions on  the number  of employees and  the amount  of wages.                                                               
He stated  that it will  be very  difficult if the  state doesn't                                                               
know the future cost.                                                                                                           
MR.  FORNIA  acknowledged  that   his  concern  is  a  legitimate                                                               
concern, which  is why the VBRS  is structured in this  way.  The                                                               
state  has  a   big  unfunded  liability.     The  variable  plan                                                               
capitalizes on three  advantages of a defined  benefit plan while                                                               
it maintains  many of  the advantages  of a  defined contribution                                                               
plan,  particularly  the  "no risk  of  unfunded  liabilities  to                                                               
MR.  FORNIA  related  that  the   defined  contribution  is  more                                                               
portable,  it  is  under  their full  control,  and  the  defined                                                               
contribution plans  are transparent  and clear to  employees, the                                                               
state, and municipalities.                                                                                                      
4:22:26 PM                                                                                                                    
MR. FORNIA  discussed the compromise  contained in HB  247 [slide                                                               
7].   The key feature  of the  defined contribution plan  is that                                                               
the employer  knows the exact  cost.   The VBRS starts  with that                                                               
fixed  contribution and  agrees  to manage  the  plan within  the                                                               
budget.   The VBRS designs  target benefit levels,  comparable to                                                               
Tier  III, but  adjustment mechanisms  are built  in.   Thus, the                                                               
plan has  lower guaranteed  levels.  From  the actuarial  side, a                                                               
lower discount rate  is used to provide a  cushion against future                                                               
adverse experience.                                                                                                             
4:23:28 PM                                                                                                                    
MR.  FORNIA  discussed  the contributions  for  police  and  fire                                                               
members [slide  8].  He  acknowledged that Mr. Barnhill  is right                                                               
that  this is  complicated.   He  directed attention  to the  two                                                               
right  hand columns  to  see  how the  fiscal  note was  derived.                                                               
Under  the VBRP  14 percent  of the  22 percent  would go  toward                                                               
pensions  and  8 percent  will  go  towards the  legacy  unfunded                                                               
liability.   He explained the  DCR under  the 22 percent  Tier IV                                                               
defined  contribution,  with  5   percent  for  the  DCR  pension                                                               
account,  3  percent  for the  health  retirement  account,  2.72                                                               
percent  for  other liabilities,  such  as  death and  disability                                                               
(D&D) and post-65 health care.   The total is 11.28 percent.  The                                                               
DOA's actuary  figures are slightly different,  although similar.                                                               
Since only 11.28 percent of  the contributions are designation to                                                               
cover the  Tier I,  II, and III  unfunded liability,  while under                                                               
Tier IV only 8 percent goes  to unfunded liability under the VBRS                                                               
proposal, the  state would need  to cover the extra  3.98 percent                                                               
for the unfunded liability, which explains  the FN cost.  He said                                                               
the  fiscal note  covers  the difference  between  the 8  percent                                                               
under the VBRS and the 11.28 percent under Tier IV today.                                                                       
4:25:29 PM                                                                                                                    
MR. FORNIA  referred to the $4  million to 7.8 million  in fiscal                                                               
costs and explained  that the reason this is going  up so rapidly                                                               
is  because  it accounts  for  the  new  people coming  into  the                                                               
system.   At some point,  virtually everyone will be  included in                                                               
Tier  V  and it  will  stabilize  and  at  that point  will  only                                                               
increase  3 to  4 percent  per year.   He  said that  the initial                                                               
increased cost  is significant.   He  anticipated that  the costs                                                               
will increase  for up to ten  years and then stabilize.   He said                                                               
that slide 9 covers non police and fire members, but is similar.                                                                
4:26:49 PM                                                                                                                    
REPRESENTATIVE SEATON asked why  the contributions for non-police                                                               
and firefighter  members differ  than for  the entire  PERS field                                                               
and asked whether it encompasses everyone in the PERS system.                                                                   
MR.  FORNIA answered  that two  left  columns represent  everyone                                                               
throughout  PERS.    The right  hand  column  covers  individuals                                                               
working in  protective occupations, basically the  non-police and                                                               
non-fire employee, for example secretaries and dispatchers.                                                                     
4:27:53 PM                                                                                                                    
REPRESENTATIVE SEATON expressed an  interest in the rationale for                                                               
this  system   having  a  higher   percentage  for   pension  for                                                               
secretaries  and dispatchers  within  police and  fire whose  job                                                               
descriptions are the same as  for other PERS employees throughout                                                               
the state.                                                                                                                      
MR.  FORNIA  suggested  that  Mr. Abbott  or  Mr.  Wescott  could                                                               
respond.  He offered his belief  that it was a fairly small group                                                               
and perhaps  it would be  for the convenience of  the department,                                                               
but he did not know the precise logic.                                                                                          
4:28:49 PM                                                                                                                    
REPRESENTATIVE MILLETT  offered her  belief that  these employees                                                               
belong  to the  same union.   She  regrettably reported  that the                                                               
Anchorage Fire  Department's senior Captain Jeff  Bayless died on                                                               
duty today.   She  recalled police officers  that had  been shot.                                                               
She reminded members  that this group is laying  down their lives                                                               
for  us  so  this  type  of  employee  is  different  than  other                                                               
employees.    She indicated  that  the  state has  a  distinction                                                               
between  public safety  peace officers  and other  state workers.                                                               
She  stated that  all of  the employees  are in  the same  union,                                                               
including the administrative  officers.  She said,  "For me, this                                                               
bill is  about covering people that  will put their lives  on the                                                               
line like  Captain Bayless,  who lost his  life about  30 minutes                                                               
ago.   This is the first  time in a  long time that we've  lost a                                                               
fireman on duty."   She went on to report that  in the last three                                                               
years the  state has lost  three police officers from  her police                                                               
department who  had been shot.   She hoped that members  would be                                                               
thinking about  people who put  their lives  on the line  and not                                                               
compare them to other administration  staff, such as the Division                                                               
of Motor Vehicles.  She  emphasized the duties the peace officers                                                               
perform are important for Alaskans.                                                                                             
4:30:53 PM                                                                                                                    
REPRESENTATIVE  SEATON clarified  that he  is talking  about non-                                                               
officer  category.    He  wondered  how  that  equates  with  the                                                               
differential that would be employer's  contribution of 12 percent                                                               
and not  the 14 percent in  the other category for  active police                                                               
and fire employees.                                                                                                             
CHAIR OLSON  reminded members  that committee  time is  short and                                                               
asked Mr. Fornia to continue.                                                                                                   
4:31:25 PM                                                                                                                    
MR.  FORNIA  discussed  actuarial and  governance  safeguards  to                                                               
ensure an adequately  funded program [slide 10].   He stated that                                                               
the  plan  is  built  around the  employer's  contribution  being                                                               
safeguards; 12  or 14 percent without  any additional bargaining.                                                               
This  differs  from  the  current   plan  in  which  an  unfunded                                                               
liability happens.   This  plan is designed  to make  the pension                                                               
council make tough  decisions to keep the  plan adequately funded                                                               
and manage benefits  so we can do that.   This happens in several                                                               
ways.   First,  the VBRS  plan  uses a  lower actuarial  discount                                                               
rate.  Second,  overtime worked is not part of  the plan.  Third,                                                               
the  employee  contributions  can  be  increased,  if  necessary.                                                               
Fourth,  any transition  benefits for  Tier  IV are  at the  full                                                               
actuarial  costs.   Fifth,  during good  times  reserves will  be                                                               
built up so  the reserves can be used during  bad economic times.                                                               
Lastly, the  VBRS will  increase to  ages 55  and 60  rather than                                                               
using years of service rules.                                                                                                   
4:33:00 PM                                                                                                                    
MR.  FORNIA referred  to the  Protective Occupational  Retirement                                                               
Council   (PORC),  which   will  be   able  to   adjust  employee                                                               
contributions,   cost-of-living    adjustment   (COLA),   benefit                                                               
formula, and health care cost sharing [slide 11].                                                                               
MR. FORNIA highlighted that more  specifically the PORC, which is                                                               
similar to a bard, can  make different decisions each year [slide                                                               
12].   Annually, the PORC  will make adjustments.   The actuarial                                                               
will  provide the  target benefit  basis  and guaranteed  benefit                                                               
basis; however,  there will  not be any  changes to  the employer                                                               
contributions rate, which  will be fixed.  He  identified this as                                                               
the compromise.                                                                                                                 
4:34:04 PM                                                                                                                    
MR.  FORNIA compared  the flexible  benefit  design safeguard  to                                                               
ensure an  adequately funded  program [slide  13].   He suggested                                                               
that  Mr.  Wescott  previously  discussed  most  of  these.    He                                                               
referred  to  the   two  bottom  times:     the  post  retirement                                                               
purchasing  adjustments   and  health  reimbursement,   which  he                                                               
characterized as  being huge  changes.   For example,  the health                                                               
reimbursement starts  out with premium reimbursement  being based                                                               
on 2013  rates; however,  as the experience  improves, it  can be                                                               
bumped up to 2014-2015.   He said that the good  news is that not                                                               
many people will retire under this  plan for many years so by the                                                               
time a meaningful number of  employees retire, the plan will have                                                               
obtained sufficient experience to know what it can afford.                                                                      
4:34:48 PM                                                                                                                    
MR. FORNIA discussed the second  safeguard, the actuarial methods                                                               
[slide 14].   The actuarial has built in a  margin for the actual                                                               
assumptions, will use  an asset valuation to  minimize and smooth                                                               
impacts,  and will  build  up  reserves during  good  times.   He                                                               
touched on  reduced discount rate  as a safeguard [slide  15] and                                                               
reported  that the  actuarials  performed  variable benefit  plan                                                               
simulations [slide 16].  First,  the plan considered how it would                                                               
have looked  if it  had started  at various  times over  the last                                                               
fifty years, after  first receiving all the data  from the Alaska                                                               
Public  Employees' Retirement  System  returns since  1981.   The                                                               
actuarial also  used statistics from  prior to 1981  and national                                                               
return statistics prior to 1981 to examine the model.                                                                           
4:35:57 PM                                                                                                                    
MR.  FORNIA compared  how the  program  would have  worked if  it                                                               
began in  1985 [slide 17].   He discussed the graph,  noting that                                                               
1985  represented an  average case.   He  pointed out  the bottom                                                               
green line  on the chart  shows the funded  ratio of the  plan on                                                               
the  level of  the target  benefits.   The guaranteed  level, for                                                               
lower  level benefits,  would  have started  out  at 120  percent                                                               
funded and would have skyrocketed to  158 percent by 2000, and by                                                               
2009 would  be 80  percent funded.   Thus,  the state  would have                                                               
paid out the guaranteed benefit level  in 2009.  During this time                                                               
the PORC  would have been  making tough decisions and  during the                                                               
90s  would  likely   have  ratcheted  the  benefits   up  to  the                                                               
guaranteed  level,  but as  the  economy  had a  downturn,  would                                                               
perhaps have suspended  COLA for a few years in  the early 2000s,                                                               
and not  granted the  2.5 percent.   He  predicted that  the VBRS                                                               
will  fall  between  these  two  lines  on  the  graph  and  have                                                               
recovered by now and the state  will be paying benefits closer to                                                               
the target benefit level.                                                                                                       
4:37:34 PM                                                                                                                    
MR. FORNIA explained  that the pro forma findings show  "a ton of                                                               
numbers" that show the typical case  in 1985 compared to the 1963                                                               
and 1996  best case and worst  case scenarios.  The  1985 typical                                                               
case today would be 93 percent  funded at the target funded ratio                                                               
as of 2013  and 15 years in  it would be 134  percent funded, but                                                               
the worst  it ever would  have been  would be 96  percent funded,                                                               
but today  the guaranteed  funded ratio would  be at  110 percent                                                               
funded [slide  18].   He asked  members to keep  in mind  that he                                                               
shows an  extreme case  of the market  value of  assets; however,                                                               
actuaries  use  a  smooth  value  of assets  to  smooth  out  the                                                               
fluctuations.   If that  was performed, the  good years  would be                                                               
lower and the bad years would have been higher.                                                                                 
4:38:36 PM                                                                                                                    
MR. FORNIA discussed the best  case scenario if the program would                                                               
have begun in 1963 [slide 19].   This plan would have been funded                                                               
at  216 percent  funded by  the time  the "dot-com  bubble" would                                                               
have  burst  on  a  guaranteed  level.    Although  probably  the                                                               
benefits would be  given out at the target level  the state would                                                               
have been  180 percent funded,  that today the state  would still                                                               
be over 100 percent.                                                                                                            
4:39:17 PM                                                                                                                    
MR.  FORNIA reviewed  the  worst case  scenario,  if the  program                                                               
would have  begun in 1996,  the fund  would have just  started so                                                               
the funding ratios would have crept  up to 126 percent, but would                                                               
have plummeted  twice.   In this instance  the benefits  would be                                                               
paid at  the target level; however,  the plan would not  have had                                                               
any retirees to speak of since  1996 was still less than 20 years                                                               
ago so  the plan  would have  paid out the  benefits only  at the                                                               
guaranteed level.                                                                                                               
4:40:09 PM                                                                                                                    
MR. FORNIA related the next  five pages reviewed case studies for                                                               
four other states with similar  plans [slides 21-25]:  Wisconsin,                                                               
South Dakota, Colorado, and Ohio.   The main thing with Wisconsin                                                               
is that its COLA is dependent  upon the fund returns so each year                                                               
they  announce the  amount of  the  variable benefit  based on  a                                                               
built  in  formula  and  following  the  most  recent  crash  the                                                               
variable  benefit  decreased.    He  pointed  out  that  retirees                                                               
'benefits could actually  go down to their  retirement level, but                                                               
not lower.   In Alaska's case  the benefit is fixed  and the PORC                                                               
will make  a decision as  to whether a  cost-of-living adjustment                                                               
or pension protection benefit can be granted.                                                                                   
4:41:39 PM                                                                                                                    
MR. FORNIA  stated that Colorado's  fire and police  pension plan                                                               
contributions  are  fixed at  8  percent  for employees  and  for                                                               
employers.   He said that  he was Colorado's actuary  starting in                                                               
1997.   If the plan was  overfunded Colorado put the  extra funds                                                               
into a defined  contribution account.  Those  funds were depleted                                                               
when the  returns were  bad.  Colorado  also has  discretion over                                                               
COLA.  He  said that they must keep their  costs below 16 percent                                                               
just like  Alaska would need  to keep  its cost below  14 percent                                                               
plus 9  percent [for a total  of 23 percent].   He cautioned that                                                               
this plan does  not include health care; in fact,  very few plans                                                               
include health  care as part  of the pension and  instead, health                                                               
care has usually been considered a separate entity.                                                                             
MR.  FORNIA  stated  that  South  Dakota's  plan  is  similar  to                                                               
Wisconsin since  it has  a variable  COLA.   He said  that Ohio's                                                               
contributions are  now fixed.   He explained that  Ohio underwent                                                               
major pension reforms  in 2012 and their systems  are required to                                                               
keep their  plans fully funded  in 30  years.  In  most instances                                                               
the states are imposing plan  reductions, particularly the police                                                               
and  fire plans  with  some  reductions to  their  benefits.   He                                                               
stated that Ohio does include retiree health care.                                                                              
4:43:30 PM                                                                                                                    
MR.  FORNIA indicated  the  proposed 14  percent  and 12  percent                                                               
employer  contribution  is  fairly  consistent  with  what  other                                                               
employers  around the  country  provide.   He  stated that  Wells                                                               
Fargo with  a 12.2  percent and Alaska  Airlines at  14.7 percent                                                               
total employer contributions [slide 26].                                                                                        
MR. FORNIA recapped  the proposed VBRS [slide 27].   He explained                                                               
the  catalyst  for  the  VBRS  structure is  that  the  state  is                                                               
concerned with  potential future unfunded  liabilities, including                                                               
that  Tier  IV  defined  contribution plan  does  not  provide  a                                                               
solution.  This plan could  provide a potential solution under HB                                                               
247.  If the 7 percent  average return is achieved, then benefits                                                               
will be pretty close to the  state's Tier III benefits.  However,                                                               
if  the experience  is  not so  good, the  benefits  will not  be                                                               
increased to the  Tier II level.  He explained  that under a pure                                                               
defined contribution plan each individual  takes the risk whereas                                                               
under  a typical  defined  benefit plan  the  employer takes  the                                                               
risk.  He stated  that in this case [under the  VBRS] the risk is                                                               
a shared  risk among  all of the  individuals so  each individual                                                               
doesn't have  to predict  how long they  will live,  invest their                                                               
own money,  or which asset  class is appropriate, since  the plan                                                               
as a whole does it.   That removes significant risk, which is the                                                               
reason this type of structure works, he said.                                                                                   
[HB 247 was held over.]                                                                                                         
The committee took an at-ease from 4:44 p.m. to 4:47 p.m.                                                                       
4:45:37 PM                                                                                                                    
           HB 316-WORKERS' COMPENSATION MEDICAL FEES                                                                        
4:47:00 PM                                                                                                                    
CHAIR OLSON announced  that the final order of  business would be                                                               
HOUSE BILL  NO. 316,  "An Act  relating to  workers' compensation                                                               
fees  for medical  treatment and  services; relating  to workers'                                                               
compensation regulations; and providing for an effective date."                                                                 
4:47:04 PM                                                                                                                    
ANNA  LATHAM,  Staff,  Representative Kurt  Olson,  Alaska  State                                                               
Legislature, stated  that for the  past decade, Alaska  has faced                                                               
the  highest  workers compensation  rates  in  the nation.    The                                                               
Alaska  Workers' Compensation  Board,  the  legislature, and  the                                                               
administration agree that  effective reform is needed.   She said                                                               
this  bill  proposes to  change  the  fee schedule  for  workers'                                                               
compensation claims  to a schedule  based on the  federal Centers                                                               
for Medicare and Medicaid Services  fees with a conversion factor                                                               
set by  the Alaska Workers' Compensation  Advisory Board (AWCAB).                                                               
She reviewed the section-by-section analysis of the bill.                                                                       
4:47:48 PM                                                                                                                    
MS.  LATHAM stated  that  Section 1  would  amend the  physician,                                                               
outpatient   and  ambulatory   surgical  center,   and  inpatient                                                               
hospital fee  schedules to  be based on  the federal  Centers for                                                               
Medicare and  Medicaid Services  fees.  Section  2 refers  to the                                                               
fee schedule  that is currently  in statute.  This  section would                                                               
go back into  effect on January 1, 2019.   She related that there                                                               
is a sunset provision for this new schedule.                                                                                    
4:48:04 PM                                                                                                                    
MS.  LATHAM stated  that  Section 3  would  require the  Workers'                                                               
Compensation Advisory Board (WCAB)  to annually review and adjust                                                               
fees set  under Section 1.   It also requires  the WCAB to  set a                                                               
conversion  factor  for  the  fee  schedules  in  Section  1.  It                                                               
provides for  maximum reimbursement for fees  rendered in another                                                               
state.  It  requires the board to set the  rate for air ambulance                                                               
service  and  to set  the  markup  and reimbursement  limits  for                                                               
durable  medical equipment.   It  requires the  board to  set the                                                               
markup,   dispensing   fee,    and   reimbursement   limits   for                                                               
prescription  drugs.    It  also  requires  a  prescription  drug                                                               
dispensed by a  physician to include in an invoice  the code from                                                               
the National Drug  Code Directory published by the  U.S. Food and                                                               
Drug Administration  (FDA).  Section 4  lists reference materials                                                               
the   department  may   incorporate,  including   future  amended                                                               
versions, into regulations.  Sections  5-8 are part of the sunset                                                               
clause, which she'll explain in a few minutes.                                                                                  
4:49:10 PM                                                                                                                    
MS. LATHAM stated  that the fee schedule currently in  use is not                                                               
working.  In 2004, the  state established a usual, customary, and                                                               
reasonable fee schedule  that was set at the  90th percentile and                                                               
reflective  of  the  geographic   area  in  which  services  were                                                               
rendered.   The UCR schedule  has been  in effect since  2004 and                                                               
since then  the state has  had the highest  workers' compensation                                                               
rates  in the  nation.   Medical costs  constitute $.76  of every                                                               
dollar spent on workers' compensation  in Alaska, which has had a                                                               
serious impact  on premium rates  paid by all  Alaskan employers.                                                               
Medicare costs have  risen 25 percent over the  past year despite                                                               
a 14  percent decline in  the frequency of  workers' compensation                                                               
claims over  the same  period.  Alaska's  premiums are  priced at                                                               
160  percent above  the national  median.   High  premiums are  a                                                               
drain  on  resources in  both  the  public and  private  sectors.                                                               
Clearly  the fee  schedule Alaska  is using  is not  effective in                                                               
reducing costs.   Upward  pressure is  constantly applied  to the                                                               
UCR schedule and  once a fee schedule is  published; charges tend                                                               
to rise  to and above the  level of payment, which  guarantees an                                                               
annual increase in the UCR charges.                                                                                             
MS. LATHAM asked why the  state should switch to a resource-based                                                               
relative value scale.   This methodology was created  in the late                                                               
80s  by  a  team  of researchers  from  Harvard,  which  included                                                               
statisticians, physicians, and economists.   They determined that                                                               
each  procedure  was  equated  to  a  relative  value  unit  that                                                               
included a  combination of  physician's work,  practice expenses,                                                               
and malpractice insurance.   This system is owned  and updated by                                                               
the  American  Medical Association  (AMA).    The AMA  assigns  a                                                               
relative value  unit to each current  procedural technology (CPT)                                                               
code.    Other   states  using  this  system   commonly  apply  a                                                               
geographical adjustment  factor.   The value  is multiplied  by a                                                               
fixed conversion factor,  which is a dollar  amount that converts                                                               
a relative  value unit into a  payment amount for service.   This                                                               
is the basis for Medicare  and Medicaid's payment schedule and 32                                                               
states have adopted this methodology.                                                                                           
4:51:12 PM                                                                                                                    
MS. LATHAM stated that HB 316  specifies that there are three fee                                                               
schedules that  will be used  for workers'  compensation billing.                                                               
The  physician   fee  schedule,  an  outpatient   and  ambulatory                                                               
surgical fee  schedule, and an in-patient  hospital fee schedule.                                                               
The  WCAB  would  then  be  responsible  for  setting  conversion                                                               
factors for all of the  three fee schedules and annually renewing                                                               
and  adjusting fees.    They  would also  set  the  fees for  air                                                               
ambulance  or Medevac.   They  would set  the markup  for durable                                                               
medical  equipment,  the  dispensing  fee and  markup  rates  for                                                               
reimbursement of prescription drugs.   She highlighted the safety                                                               
net in HB  316, in the form  of the sunset provision.   This bill                                                               
will give  the WCAB four years  to set the new  rates and measure                                                               
the success  of those reforms.   The new  resource-based relative                                                               
value  scale and  the  conversion factors  would  go into  effect                                                               
January 1,  2015 and sunset  January 1,  2019.  Section  2, which                                                               
includes all of  the old language using the UCR  schedule go back                                                               
into  effect January  1,  if  the legislature  did  not take  any                                                               
action.  She  stated that HB 316 is the  first step in developing                                                               
a  solution to  the escalating  medical costs  that Alaska  faces                                                               
with its  workers' compensation system.   The concepts introduced                                                               
in  HB  316 were  unanimously  approved  by  the WCAB  this  last                                                               
4:52:43 PM                                                                                                                    
MS.  LATHAM outlined  some  concern about  the  WCAB setting  the                                                               
conversion  factors, in  particular,  due to  their expertise  in                                                               
setting  fee  schedules.   Another  board,  the Medical  Services                                                               
Review  Committee (MSRC),  is defined  under AS  23.30.095.   Its                                                               
mission  is  to assist  and  advise  the  Department of  Labor  &                                                               
Workforce Development  (DLWD) and  the WCAB in  matters involving                                                               
appropriateness,  necessity,  and  cost of  medical  and  related                                                               
services.   However, the current a  nine member MCRC has  not met                                                               
since  2009.    She  related   that  four  members  have  medical                                                               
expertise  and the  committee will  develop a  proposed committee                                                               
substitute requesting  the MSRC to  advise the WCAB  when setting                                                               
conversion factors.  She anticipated  that the proposed committee                                                               
substitute would be before the committee soon.                                                                                  
4:53:35 PM                                                                                                                    
CHAIR  OLSON  remarked  that several  months  ago  the  committee                                                               
started contacting all  the stakeholders to solicit  advice.  The                                                               
committee has  begun to  receive information  back that  is being                                                               
incorporated into the CS.                                                                                                       
4:54:24 PM                                                                                                                    
JOHN  BITNEY,  Lobbyist, stated  that  he  represents the  Alaska                                                               
Surgery  Center.    He  indicated that  the  concern  the  Alaska                                                               
Surgery Center expressed  was having the board  be a rate-setting                                                               
entity.    He  believed  that some  provisions  in  the  proposed                                                               
committee  substitute will  address this.   He  indicated he  has                                                               
provided  written comments,  but  reiterated that  he thinks  the                                                               
proposed  committee substitute  will  address  this; however,  he                                                               
will review the committee substitute once it is finalized.                                                                      
4:55:17 PM                                                                                                                    
DAVIS  PETERSON,  Orthopedic  Surgeon;  President,  Alaska  State                                                               
Orthopaedics  Society,  stated  he  has  previously  submitted  a                                                               
written  statement  that includes  details.    He said  that  his                                                               
society would prefer  an RVRVS type for billing  purposes for the                                                               
administrative  simplicity   and  since   the  RVRVS   system  is                                                               
maintained  for  updated  codes and  modifications  of  codes  as                                                               
technology develops,  which is readily  maintained.  In  the past                                                               
problems have existed with private  coding services that were not                                                               
maintained  appropriately   and  were   quickly  outdated.     He                                                               
emphasized  that  his  organization  would  prefer  a  conversion                                                               
factor  system,   and  like  some  of   the  other  stakeholders,                                                               
including  the Alaska  State  Medical  Association, would  prefer                                                               
that rate  setting and conversion factor  adjustment be completed                                                               
by  a separate  entity, preferably  made up  of commission  level                                                               
individuals.  Additionally, his  group would prefer uniformity be                                                               
developed among  employers and stakeholders,  in terms  of forms,                                                               
paperwork, and submissions,  so physicians will not  need to deal                                                               
with  multiple entities  that  make  administrative changes  more                                                               
complicated.   He  said  that, currently,  his  society is  being                                                               
faced with the ICD 10  changes that require software adaption and                                                               
billing for  Medicare purposes that  will entail  additional cost                                                               
to officers,  including hiring  additional employees  for coding.                                                               
As much  as possible, he hoped  for consistency in order  to save                                                               
time, training, and  money in the long run, which  will help with                                                               
4:58:22 PM                                                                                                                    
SALLIE  STUVEK, Human  Resources Director,  Fairbanks North  Star                                                               
Borough (FNSB),  stated that  she oversees  the Division  of Risk                                                               
Management,  which  handles  the  workers'  compensation  benefit                                                               
program  for the  FNSB and  the FNSB  School District,  which are                                                               
self-insured  plans.   The  FNSB continues  to  see increases  in                                                               
medical cost  and believes  that the changes  proposed in  HB 316                                                               
are  a step  in the  right  direction, and  the FNSB  is in  full                                                               
support   of  those   changes.     She  stated   that  the   FNSB                                                               
administration  and the  assembly support  the proponents  of the                                                               
WCAB's adopted resolution  in September 2013.  She  referred to a                                                               
letter  of  support  and  FNSB  Resolution  [Number  2014-09]  in                                                               
support  of the  changes  outlined [in  Resolution  13-01 of  the                                                               
Alaska Workers' Compensation Board].                                                                                            
4:59:29 PM                                                                                                                    
DAVE  JONES, Assistant  Superintendent,  Kenai Peninsula  Borough                                                               
School  District (KPBSD),  stated  that  he previously  testified                                                               
before  this committee  with respect  to the  large medical  cost                                                               
increases   the   KPBSD's    workers'   compensation   plan   has                                                               
experienced.   He  said he  will not  repeat the  testimony.   He                                                               
stated  that the  fee schedules  within HB  316 represent  a good                                                               
start toward  addressing the state's  medical cost concerns.   He                                                               
would  like to  see  treatment guidelines  developed to  regulate                                                               
usage, too.   He urged  members to move  HB 316, which  will help                                                               
control the workers' compensation costs.                                                                                        
5:00:38 PM                                                                                                                    
JULIE  CISCO,  Risk  Manager,   Kenai  Peninsula  Borough  School                                                               
District (KPBSD),  said she seconded  everything Mr.  Jones said.                                                               
Any steps  that the state  can make to get  workers' compensation                                                               
costs under  control will be  greatly appreciated.  She  said the                                                               
KPBSD will continue to support HB 316.                                                                                          
5:01:10 PM                                                                                                                    
DAVE KESTER stated  he is representing himself.  He  said he is a                                                               
commercial  insurance  broker  and  prior to  that  worked  as  a                                                               
workers' compensation  underwriter for an insurance  company.  He                                                               
also  said  he has  served  for  ten years  as  a  member of  the                                                               
Workers' Compensation Board, having  just been reappointed to his                                                               
fourth  term.   He  clarified  that he  is  not representing  the                                                               
Workers'  Compensation Board.    He participated  in the  working                                                               
group this summer  that heard from a large  array of stakeholders                                                               
in Fairbanks,  Juneau, Kenai, and Anchorage,  including large and                                                               
small employers, members of  labor, medical providers, adjusters,                                                               
attorneys  and  others.   Many  public  members  expressed  their                                                               
concern about the rising medical  costs in workers' compensation.                                                               
As  a  result, the  board  adopted  Resolution 13-01  to  support                                                               
addressing system  costs under  the Alaska  Workers' Compensation                                                               
Act.  He offered his belief that  HB 316 is taking a lot of those                                                               
into account and offered his support  for the bill.  He indicated                                                               
that the current system cannot  sustain these types of escalating                                                               
medical  costs  and  a  different   medical  fee  methodology  as                                                               
presented in  HB 316 will have  a big impact.   He cautioned that                                                               
without it  he feared  employers would  be subject  to additional                                                               
increases,  which  will make  them  uncompetitive  and the  state                                                               
uncompetitive.   The legislative  intent for the  Alaska Workers'                                                               
Compensation Act  was to ensure  the quick, efficient,  fair, and                                                               
predictable  delivery  of  indemnity   and  medical  benefits  to                                                               
injured workers at a reasonable cost  to employers.  He said that                                                               
reasonable cost is far exceeded  for employers.  He asked members                                                               
to  carefully consider  the  sunset clause.    He suggested  that                                                               
fixing the problem  and then returning to a  methodology that got                                                               
us into this problem in  the first place seems counterproductive.                                                               
He   also   advocated   implementing   evidence-based   treatment                                                               
guidelines and encouraged the  committee to consider implementing                                                               
the guidelines into  the bill.  Additionally,  the suggested that                                                               
having  the MSRC  give input  to help  the board  is a  very good                                                               
idea.   He  admitted that  the board  doesn't consist  of medical                                                               
experts.  The  WCB had considered seeking that  kind of expertise                                                               
when it adopted  the resolution.  He  appreciated the committee's                                                               
time and efforts to try to fix the system.                                                                                      
5:05:12 PM                                                                                                                    
CHUCK  BRADY,  President,   Workers'  Compensation  Committee  of                                                               
Alaska  (WCCA);,  Manager,  Workers' Compensation,  Arctic  Slope                                                               
Regional  Corporation, stated  that he  is primarily  responsible                                                               
for workers'  compensation in the  Lower 48; however, he  is very                                                               
much  involved  with  Alaska,  too.   He  referred  to  a  letter                                                               
submitted today on  behalf of the WCCA voicing support  of HB 316                                                               
with suggestions.   The suggestions  are consistent with  what he                                                               
previously heard, including that input  by the MSRC is probably a                                                               
good idea since they have  medical expertise.  Another suggestion                                                               
is that  the fee schedule alone  will not get the  state where it                                                               
needs to be.  In his  experience in the claims field, every state                                                               
that  has introduced  fee  schedules as  a  means of  controlling                                                               
costs has  experienced a  limited effect over  a short  period of                                                               
time until  medical providers find a  way to bill around  it.  He                                                               
said that medical fee schedules  alone are not effective but they                                                               
can  be if  they are  introduced with  utilization and  frequency                                                               
standards to control treatment.   Additionally, there needs to be                                                               
changes to AS 23.30.090 (a) to  deal with the effects of the 1999                                                               
U.S.  Supreme  Court  decision for  Hebden  v.  WCAB  [Bethenergy                                                               
Mines,  Inc..),  632  A.2d  1302  (Pa.Commonwealth  1993)]  which                                                               
essentially gave  treating doctors  a blank  check for  two years                                                               
with  no real  recourse  by employers  or  insurance carriers  to                                                               
question what  was being  done or  to limit  the cost  within the                                                               
first two years.  Finally, the  sunset clause is of concern since                                                               
the state  could be right  back where  it started in  four years.                                                               
He offered support HB 316 with the additional comments.                                                                         
5:07:40 PM                                                                                                                    
CHAIR OLSON answered that some  components will come out shortly.                                                               
He indicated  that next  year, the committee  could take  up best                                                               
practices  for pain  management  and other  components that  will                                                               
interface with this bill.                                                                                                       
5:08:03 PM                                                                                                                    
RACHEL PETRO,  President; Chief  Executive Officer,  Alaska State                                                               
Chamber  of Commerce  (Alaska Chamber),  stated  that the  Alaska                                                               
Chamber represents  hundreds of businesses across  Alaska as well                                                               
as local chambers.  She  stated that the Alaska Chamber submitted                                                               
a letter that articulated all  of their concerns.  She emphasized                                                               
workers' compensation  reform is  a top  priority for  the Alaska                                                               
Chamber and  all of the  members.  It's a  competitiveness issue.                                                               
She appreciated the  committee introducing the bill.   She stated                                                               
that the Alaska Chamber's letter  made recommendations to improve                                                               
the bill.   More specifically, it  would like to see  more policy                                                               
direction  given to  the  board  in respect  to  giving them  the                                                               
responsibility of  setting the fee schedules.   Additionally, the                                                               
Alaska  Chamber would  like  to  see a  more  robust and  defined                                                               
public process  for the promulgation  of regulations  through the                                                               
board.   She agreed with  earlier comments regarding  adoption of                                                               
evidence  based  treatment   guidelines  and  utilization  review                                                               
standards.  Finally,  the Alaska Chamber considers the  MSRC as a                                                               
great option to help provide  advice to the Workers' Compensation                                                               
Board.   She  said the  Alaska Chamber  looks forward  to working                                                               
with   the  committee   to  achieve   real  reform   on  workers'                                                               
compensation in Alaska.                                                                                                         
5:09:55 PM                                                                                                                    
SARAH LEFEBVRE,  Staff, Exclusive Paving and  University Redimix;                                                               
Member;  Alaska  Workers'  Compensation Board,  agreed  with  Mr.                                                               
Kester,  especially  with respect  to  the  sunset clause.    She                                                               
doesn't  believe  that type  of  mechanism  works well  and  said                                                               
further changes are  needed.  She said this is  an excellent bill                                                               
and an excellent  start.  She discouraged any  changes that could                                                               
possibly  impede  its progress,  and  her  only concern  was  the                                                               
sunset clause.                                                                                                                  
CHAIR OLSON said the committee will consider the sunset clause.                                                                 
5:11:30 PM                                                                                                                    
KAREN PURDUE,  Chief Executive  Officer; President;  Alaska State                                                               
Hospital  and  Nursing  Home Association  (ASHNHA),  stated  that                                                               
hospitals and  nursing homes are  large private  sector employers                                                               
so  they bear  the burden  of  workers' compensation  costs.   As                                                               
employers and health care providers,  ASHNHA supports the concept                                                               
of workers'  compensation fee reform.   She indicated  that where                                                               
it makes  sense AHNHA is  willing to be  paid less than  they are                                                               
today.   However,  she outlined  a  few concerns  about fees  and                                                               
rates set out  in the bill.   It might seem easy  to use Medicare                                                               
and multiply  those rates geographically; however,  hospitals and                                                               
nursing  homes are  paid in  five different  ways under  Medicare                                                               
law.   She said that ASHNHA  submitted a letter that  covers more                                                               
details.   She  highlighted that  Medicare  is a  poor payer  for                                                               
Providence  Alaska  Regional;   Fairbanks  Memorial,  Kenai,  and                                                               
Bartlett  Memorial   Hospital.    She  cautioned   against  using                                                               
Medicare since it  pays about $.30 on the dollar  in Alaska.  She                                                               
said  ASHNHA  needs  some  reassurance   in  the  process.    The                                                               
commercial rates  that Premera  and Aetna pay  might be  a target                                                               
that  the  committee  could  consider to  provide  a  minimum  or                                                               
backstop in this discussion.   Secondly, in terms of the critical                                                               
access hospitals, which are 13  of the small hospitals in Alaska,                                                               
Congress has  already exempted them from  Medicare fee schedules.                                                               
She  explained  that these  small  hospitals  have an  exemption,                                                               
since they cannot  kept their doors open based on  volume so they                                                               
have  a  cost-based reimbursement  system.    For example,  Idaho                                                               
exempts "cause"  from their workers' compensation  Medicare based                                                               
fee  schedule  and she  recommended  that  this  be the  case  in                                                               
Alaska.   She pointed out  that the letter also  outlines skilled                                                               
nursing facilities.   She  said that the  ASHNHA stands  ready to                                                               
work with the committee.                                                                                                        
5:14:57 PM                                                                                                                    
GREG MILLES,  Physical Therapist; WCC, Owner,  Home Town Physical                                                               
Therapy, stated  that he has  a small private  outpatient clinic.                                                               
He  supported  ASHNHA's  comments  but asked  to  tread  lightly.                                                               
Currently  this bill  is based  off  Medicare fee  schedule.   He                                                               
related his understanding that this  practice has occurred in the                                                               
Lower  48.    Small  practices and  some  larger  facilities  are                                                               
beginning to minimize  the health care exposure to  Medicare.  He                                                               
thought this could  impact how much health care  coverage will be                                                               
provided  for the  workers'  compensation  patients, which  could                                                               
have  the effect  of  minimizing patients'  health  care and  how                                                               
quickly these patients return to work.                                                                                          
CHAIR  OLSON pointed  out  this is  a work  in  progress and  the                                                               
committee is receiving a lot of feedback.                                                                                       
5:17:00 PM                                                                                                                    
RUTH  CARSON,  Physical   Therapist,  Equinox  Physical  Therapy,                                                               
stated she  has a small  physical therapy practice  in Fairbanks.                                                               
She  agreed with  Ms.  Purdue  and Dr.  Milles  that the  current                                                               
Medicare and  Medicaid fee schedule  will make it  more difficult                                                               
to run  her business.   She understands  the need to  reform, but                                                               
she must work harder to keep her doors open.                                                                                    
5:18:01 PM                                                                                                                    
WALTER  PARRISH, testifying  on  behalf of  himself, stated  that                                                               
cutting  these costs  will interfere  with his  health care.   He                                                               
said  he thought  it is  a savings  to the  workers' compensation                                                               
board to have  that in effect. He  said, "My old saying  is if it                                                               
ain't broke don't fix it."                                                                                                      
5:18:44 PM                                                                                                                    
JULIANA AMENT,  Physical Therapist, DPT, MOMT  Owner, stated that                                                               
she  is a  small  business owner,  a health  care  provider as  a                                                               
physical therapist,  and a  member of the  Alaska Chapter  of the                                                               
American  Physical Therapy  Association.   While the  association                                                               
supports  the  efforts  to  reform   and  improve  this  workers'                                                               
compensation  system, she  still has  a number  of questions  and                                                               
concerns about the bill.  The  proposal is broad and far reaching                                                               
and may  have serious  ramifications if  all of  its implications                                                               
are  not  fully vetted  or  understood.    She urged  members  to                                                               
proceed with  caution.  The  proposed RBRVS-based system  may not                                                               
be  ideal for  Alaska.   The proposed  workers' compensation  fee                                                               
schedule would have its foundation  in the Medicare physician fee                                                               
schedule,  which is  a fundamentally  flawed  and broken  system.                                                               
She did  not think  it will  be a good  fit for  Alaska.   It has                                                               
taken  only focused  management strategies  and cost  shifting in                                                               
her clinic  to be able to  continue to see patients  whose payers                                                               
are currently  using an  RBRVS system like  Medicare.   This bill                                                               
appears to  have a five  year sunset; which would  greatly affect                                                               
her business's  ability to continue to  see workers' compensation                                                               
patients  in North  Pole.   Given  the  potential for  unintended                                                               
consequences  and  some  of the  ramifications  this  bill  could                                                               
potentially have on small business  health care providers and the                                                               
patients she  sees, she strongly  recommended the bill  be turned                                                               
over  to a  subcommittee to  review the  variables and  potential                                                               
outcomes.  She offered to submit her statement in writing.                                                                      
5:21:05 PM                                                                                                                    
RICHARD   COBDEN,  Orthopedic   Surgeon,  Fairbanks   Orthopaedic                                                               
Center, stated  that he  is a  sole practitioner,  immediate past                                                               
Chief of  Staff at Fairbanks  Memorial Hospital, and a  member of                                                               
the Alaska  State Orthopaedics Association.   He said he  has two                                                               
problems with the bill.  First,  the CMS RBRVS Medicare based fee                                                               
schedule creates  big problems  for him and  his colleagues.   He                                                               
also said  that most of  them are  barely getting by  even though                                                               
the reimbursement  rates are reported as  very high.  In  fact, a                                                               
lot of  the CMS reimbursement rates  will change.  On  April 1 it                                                               
will  revert back  to 26  percent  lower rates  than the  current                                                               
rates based on issues that  the Congress has experienced.  Basing                                                               
it on  that kind of  reimbursement system could be  a catastrophe                                                               
for  Alaska.   Secondly, the  average wholesale  price (AWP)  for                                                               
medications   has  always   been  used   for  reimbursement   for                                                               
prescription medications, which should  continue since the actual                                                               
invoice price  included in the  bill is significantly lower.   He                                                               
said  that physicians  will no  longer be  able to  give patients                                                               
prescription  medications at  a great  convenience to  them.   He                                                               
asked  members  to consider  the  basic  reimbursement rate,  the                                                               
Medicare rate,  and the other  rates before deciding  that Alaska                                                               
is just like the rest of the  50 states.  He asserted that Alaska                                                               
is  not, that  it has  big problems,  very difficult  medical and                                                               
orthopedic  problems  with injured  patients  and  the state  and                                                               
physicians have  an obligation to  take care  of them.   He would                                                               
like to  continue to do  this, but  his colleagues have  told him                                                               
that  if the  CMS rates  drop  and if  the workers'  compensation                                                               
rates  drop,  that  they  simply  won't  be  able  to  see  these                                                               
patients.  He concluded that this  is a huge problem for patients                                                               
who should be the number one priority.                                                                                          
5:23:11 PM                                                                                                                    
REPRESENTATIVE REINBOLD  asked whether  he could  provide written                                                               
testimony outlining his  concerns.  She expressed  an interest in                                                               
the April 1, 2014 rates dropping by 26 percent.                                                                                 
DR. COBDEN  offered to do so.   He indicated that  he has already                                                               
prepared a written statement and will add to it.                                                                                
5:23:47 PM                                                                                                                    
DEBORAH  MURSCH,  Financial  Director, Willow  Physical  Therapy,                                                               
stated that she has a  small physical therapy business and agreed                                                               
with  the  previous  testimony.    She  said  that  her  practice                                                               
disagrees with this bill.   She hoped the committee will consider                                                               
the  small physical  therapist's practices  in Fairbanks  so they                                                               
can stay open and be able to provide medical care for patients.                                                                 
[HB 316 was held over.]                                                                                                         
5:24:38 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
5:24 p.m.                                                                                                                       

Document Name Date/Time Subjects
HB247 ver A.PDF HL&C 3/7/2014 3:15:00 PM
HB 247
HB247 Sponsor Statement.pdf HL&C 3/7/2014 3:15:00 PM
HB 247
HB247 Sectional Analysis.pdf HL&C 3/7/2014 3:15:00 PM
HB 247
HB247 Fiscal Note-DOA-DRB-02-28-2014.pdf HL&C 3/7/2014 3:15:00 PM
HB 247
HB247 Fiscal Note-DOA-DRB-02-28-2014-actuarial.pdf HL&C 3/7/2014 3:15:00 PM
HB 247
HB247 Draft Proposed Blank CS ver U.pdf HL&C 3/7/2014 3:15:00 PM
HB 247
HB247 Supporting Documents- FAQs.pdf HL&C 3/7/2014 3:15:00 PM
HB 247
HB247 Supporting Documents-APDEA 02-24-2014.pdf HL&C 3/7/2014 3:15:00 PM
HB 247
HB247 Supporting Documents-Tools and Safeguards.pdf HL&C 3/7/2014 3:15:00 PM
HB 247
HB247 Supporting Documents-Assorted Letters.pdf HL&C 3/7/2014 3:15:00 PM
HB 247
HB247 Supporting Documents-VBRS-PP Presentation.pdf HL&C 3/7/2014 3:15:00 PM
HB 247
HB316 ver N.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Sponsor Statement.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Sectional Analysis.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Fiscal Note-DOLWD-WC-03-03-14.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Fiscal Note-DOA-RM-02-28-14.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Letter NFIB 3-5-2014.PDF HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Resolution ASHBA.PDF HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-WC Board Resolution 13-01.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-WC Fee Comparison.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-AHLA 3-5-2014.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Legislative Research Brief.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Letter AK Chamber 03-05-2014.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Letter ASHNA 3-4-2014.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Letter FNSB 2-28-14.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
SB 2
HB247 Supporting Documents-VRP Presentation-Fornia 3-07-2014.pdf HL&C 3/7/2014 3:15:00 PM
HB 247
HB316 Supporting Documents-Letter-ASRC-ANC 0306-2014.pdf HL&C 3/7/2014 3:15:00 PM
HB 316