Legislature(2015 - 2016)

03/23/2015 03:00 PM L&C

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                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                         March 23, 2015                                                                                         
                           3:21 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Kurt Olson, Chair                                                                                                
Representative Shelley Hughes, Vice Chair                                                                                       
Representative Jim Colver                                                                                                       
Representative Gabrielle LeDoux                                                                                                 
Representative Cathy Tilton                                                                                                     
Representative Andy Josephson                                                                                                   
Representative Sam Kito                                                                                                         
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mike Chenault (alternate)                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 135                                                                                                              
"An Act establishing a Roth contribution program for the public                                                                 
employees' deferred compensation program; and providing for an                                                                  
effective date."                                                                                                                
                                                                                                                                
     - MOVED HB 135 OUT OF COMMITTEE                                                                                            
                                                                                                                                
HOUSE BILL NO. 123                                                                                                              
"An  Act establishing  the Marijuana  Control Board;  relating to                                                               
the powers  and duties of  the Marijuana Control  Board; relating                                                               
to the  appointment, removal, and  duties of the director  of the                                                               
Marijuana  Control  Board;  relating to  the  Alcoholic  Beverage                                                               
Control Board; and providing for an effective date."                                                                            
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 135                                                                                                                  
SHORT TITLE: PUBLIC EMPLOYEE Roth CONTRIBUTIONS                                                                                 
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
03/04/15       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/04/15       (H)       L&C, FIN                                                                                               
03/23/15       (H)       L&C AT 3:15 PM BARNES 124                                                                              
                                                                                                                                
BILL: HB 123                                                                                                                  
SHORT TITLE: ESTABLISH MARIJUANA CONTROL BOARD                                                                                  
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
02/23/15       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/23/15       (H)       L&C, JUD, FIN                                                                                          
03/04/15       (H)       L&C AT 3:15 PM BARNES 124                                                                              
03/04/15       (H)       Heard & Held                                                                                           
03/04/15       (H)       MINUTE(L&C)                                                                                            
03/11/15       (H)       L&C AT 3:15 PM BARNES 124                                                                              
03/11/15       (H)       Heard & Held                                                                                           
03/11/15       (H)       MINUTE(L&C)                                                                                            
03/16/15       (H)       L&C AT 3:15 PM BARNES 124                                                                              
03/16/15       (H)       Heard & Held                                                                                           
03/16/15       (H)       MINUTE(L&C)                                                                                            
03/20/15       (H)       L&C AT 3:15 PM BARNES 124                                                                              
03/20/15       (H)       Heard & Held                                                                                           
03/20/15       (H)       MINUTE(L&C)                                                                                            
03/23/15       (H)       JUD AT 1:00 PM CAPITOL 120                                                                             
03/23/15       (H)       L&C AT 3:15 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JOHN BOUCHER, Deputy Commissioner                                                                                               
Office of the Commissioner                                                                                                      
Department of Administration (DOA)                                                                                              
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified and answered questions on behalf                                                               
of the administration on HB 135.                                                                                                
                                                                                                                                
KATHY LEA, Chief Pension Officer                                                                                                
Central Office                                                                                                                  
Retirement & Benefits                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the discussion of HB 135.                                                               
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:21:36 PM                                                                                                                    
                                                                                                                                
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee meeting  to order at  3:21 p.m.   Representatives Kito,                                                               
Josephson, LeDoux, Colver, Hughes,  Tilton and Olson were present                                                               
at the call to order.                                                                                                           
                                                                                                                                
           HB 135-PUBLIC EMPLOYEE Roth CONTRIBUTIONS                                                                        
                                                                                                                                
3:21:50 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  that the first order of  business would be                                                               
HOUSE  BILL NO.  135, "An  Act establishing  a Roth  contribution                                                               
program for the public  employees' deferred compensation program;                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
3:22:36 PM                                                                                                                    
                                                                                                                                
JOHN BOUCHER,  Deputy Commissioner,  Office of  the Commissioner,                                                               
Department of  Administration (DOA),  on behalf of  the governor,                                                               
stated that this  bill will empower plan members  to take control                                                               
of one portion  of their retirement portfolio,  namely the timing                                                               
of  the taxation  of one  half of  their deferred  contributions.                                                               
The  current statute  has been  in  effect since  1972, but  only                                                               
allows  deferred compensation  to be  made as  part of  a pre-tax                                                               
contribution.   This bill  is an effort  to modernize  and update                                                               
the  options available  to members  of the  plan to  comport with                                                               
changes that  have been  made on a  national level  with deferred                                                               
compensation plans.                                                                                                             
                                                                                                                                
3:23:59 PM                                                                                                                    
                                                                                                                                
MR.  BOUCHER  reported  that  in  January  2011  Congress  passed                                                               
legislation enabling  governments to implement a  designated Roth                                                               
contribution  and HB  135 would  allow for  the incorporation  of                                                               
this option into public employees  who participate in the state's                                                               
deferred compensation  plan.   The bill  would enable  members to                                                               
control  the  timing  of  the  taxation taxed  at  the  time  the                                                               
contribution is made to the  deferred compensation plan or at the                                                               
time   of   distribution.     The   current   statute   restricts                                                               
contributions to deferred compensation  program as pre-tax income                                                               
only, which  effectively means  that the income  is taxed  at the                                                               
time of its  distribution to the plan member.   He suggested that                                                               
if HB 135  passed as proposed, it would enable  members to choose                                                               
to have  their contributions taxed  at the time  of contribution,                                                               
which would mean  the income would be considered tax  free at the                                                               
time of qualified distribution of the plan.                                                                                     
                                                                                                                                
3:25:07 PM                                                                                                                    
                                                                                                                                
MR. BOUCHER  stated that  HB 135 would  enable members  to choose                                                               
the  time  when  they  will be  taxed  on  deferred  compensation                                                               
contribution.  The  default option for existing  members would be                                                               
the  current pre-tax  plan.   Members  would  need to  positively                                                               
elect  to change  the method  for their  Roth investment  to have                                                               
their contributions changed  to a taxable status.   This proposed                                                               
bill was in response to requests  from members to the Division of                                                               
Retirements and  Benefits, Department of Administration  to offer                                                               
this option and the department  has provided a list of frequently                                                               
asked questions about Roth 457 programs.                                                                                        
                                                                                                                                
3:26:06 PM                                                                                                                    
                                                                                                                                
MR. BOUCHER  provided a section-by-section analysis  of the bill.                                                               
He stated  that Section 1  would repeal the existing  statute and                                                               
reenact it to provide for  a post-tax Roth contribution option in                                                               
the public  employees' deferred  compensation plan  and clarifies                                                               
that  state and  federal income  tax is  not deferred  under this                                                               
option.   This section establishes  that if no  positive election                                                               
is made  for a Roth  investment, contributions will be  deemed to                                                               
be  on a  pre-tax basis.   This  allows the  pre-tax target  date                                                               
options to  continue as the  default option  for the plan  if the                                                               
member  makes  no  investment  election.     This  section  would                                                               
establish dollar  limitations according  to the  Internal Revenue                                                               
Service (IRS) code  that allows the administrator of  the plan to                                                               
establish rules and procedures governing  the election process by                                                               
participating employees.                                                                                                        
                                                                                                                                
3:27:12 PM                                                                                                                    
                                                                                                                                
MR. BOUCHER stated  that Section 2 would add a  new definition to                                                               
Roth contributions to have a  meaning under 26 U.S.C. 402A(c) and                                                               
Section 3 would establish the effective date of July 1, 2015.                                                                   
                                                                                                                                
3:27:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LEDOUX asked  for  further  clarification on  the                                                               
definition of a Roth contribution.                                                                                              
                                                                                                                                
3:27:47 PM                                                                                                                    
                                                                                                                                
KATHY LEA,  Chief Pension Officer,  Central Office,  Retirement &                                                               
Benefits, stated that  the term "Roth" was one  named after [U.S.                                                               
Senator  William  Roth of  Delaware],  the  bill sponsor  of  the                                                               
enabling legislation at  the federal level.  She  described it as                                                               
an  after  tax retirement  savings  vehicle  that would  allow  a                                                               
person to  put in an amount  that has already been  taxed and the                                                               
investment earnings, therefore, will be tax free.                                                                               
                                                                                                                                
REPRESENTATIVE  LEDOUX asked  whether  there  was any  difference                                                               
between a  Roth contribution into  a retirement account  than one                                                               
in  which the  person  received  the money  and  had his/her  own                                                               
investment advisor and put it into a retirement account.                                                                        
                                                                                                                                
MS. LEA  explained that  if a person  had an  investment account,                                                               
that  the  earnings  on  that  account  will  be  taxable.    The                                                               
difference with a Roth investment  would be that the earnings are                                                               
not taxable so long as the person has a qualified distribution.                                                                 
                                                                                                                                
3:29:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   LEDOUX  related   her  understanding   that  the                                                               
principal under  a Roth investment  would not be taxable  at time                                                               
of  distribution since  the  funds were  already  taxed, but  the                                                               
earnings would be taxable at  the time of distribution since they                                                               
had not been taxed.                                                                                                             
                                                                                                                                
MS.  LEA   clarified  that  any   contributions  into   the  Roth                                                               
investment are taxed  at the time they are made.   The investment                                                               
earnings on  the Roth account  for the years  it is held  are tax                                                               
free.   Thus, the funds are  tax free on distribution  as long as                                                               
the person has a qualified distribution.                                                                                        
                                                                                                                                
3:30:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   COLVER  related   his  understanding   the  only                                                               
similarity  between a  Roth IRA  [Individual Retirement  Account]                                                               
and a  Roth 457 was the  name "Roth."  He  further understood the                                                               
Roth 457 referred  to post-tax investment money  that yields tax-                                                               
free income on any investment  growth for contributions placed in                                                               
the  deferred  compensation plan.    This  bill would  allow  the                                                               
employee  to either  select a  new option  for either  pre-tax or                                                               
post-tax vehicle.                                                                                                               
                                                                                                                                
MR. BOUCHER answered yes.                                                                                                       
                                                                                                                                
REPRESENTATIVE COLVER related his  understanding that if the Roth                                                               
was pre-taxed,  when the person  took the earnings out,  it would                                                               
be taxed at that time.   He stated that if the contributions have                                                               
not already been taxed, the  income that accrues will be taxable,                                                               
similar to  other investment accounts,  but if it was  a post-tax                                                               
investment, the deferred compensation  contributions would be tax                                                               
free.                                                                                                                           
                                                                                                                                
MR.  BOUCHER answered  yes.   For example,  a person  may have  a                                                               
dependent and  wish to  pay the  tax burden and  elect to  have a                                                               
portion of deferred compensation that  he/she planned on paying a                                                               
tax for,  but also  have a  portion that  the individual  did not                                                               
want  to pay  tax on  in order  to  pay the  tax on  behalf of  a                                                               
grandchild.                                                                                                                     
                                                                                                                                
3:32:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HUGHES  said currently  employees have  the option                                                               
to put  money in Roth  account and pay  taxes later so  this bill                                                               
would  allow them  an  option  to pay  taxes  early.   She  asked                                                               
whether  this bill  simply  gave an  option of  when  to pay  the                                                               
taxes.                                                                                                                          
                                                                                                                                
MR. BOUCHER answered yes.                                                                                                       
                                                                                                                                
3:32:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX related her  understanding that if the Roth                                                               
contribution  was tax  deferred, the  principal and  earnings are                                                               
taxed when distributed.                                                                                                         
                                                                                                                                
MS. LEA answered yes; if the Roth contributions were pre-taxed.                                                                 
                                                                                                                                
REPRESENTATIVE LEDOUX said  if it was not  deferred, the employee                                                               
would pay  the income tax prior  to put it is  contributed to the                                                               
Roth, but  any earnings would  not be  taxed.  She  asked whether                                                               
that was correct.                                                                                                               
                                                                                                                                
MS. LEA answered yes.                                                                                                           
                                                                                                                                
3:33:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  related a scenario  in which $1  dollar is                                                               
put in  the Roth investment and  the dollar turns into  $10, that                                                               
the employee would pay taxes on the entire $10.                                                                                 
                                                                                                                                
MS. LEA answered yes.                                                                                                           
                                                                                                                                
REPRESENTATIVE  LEDOUX said,  however, if  the funds  were placed                                                               
into  a "tax  not deferred  plan,"  the person  would pay  income                                                               
taxes on  the $1 and get  $9 tax-free.  She  thought that sounded                                                               
like a great idea for the investor.                                                                                             
                                                                                                                                
MS. LEA answered yes; that the earnings would not be taxed.                                                                     
                                                                                                                                
3:34:30 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON,  after first determining  no one wished  to testify,                                                               
closed public testimony on HB 135.                                                                                              
                                                                                                                                
3:34:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX commented  that so long as  it doesn't cost                                                               
the  state,  it  sounds  like   a  great  idea  for  the  state's                                                               
employees.                                                                                                                      
                                                                                                                                
CHAIR OLSON answered that HB 135 has a [zero] fiscal note.                                                                      
                                                                                                                                
3:35:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COLVER echoed  the same comments.  He  said HB 135                                                               
provides a good  way for employees to defer taxes  or income.  He                                                               
said he was a little confused  because of the Roth IRA, which has                                                               
income  limits, but  this is  different  and relates  to the  tax                                                               
deferment available.                                                                                                            
                                                                                                                                
3:36:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HUGHES  moved to  report HB  135 out  of committee                                                               
with individual recommendations and  the accompanying zero fiscal                                                               
note.   There being no  objection, HB  135 was reported  from the                                                               
House Labor and Commerce Standing Committee.                                                                                    
                                                                                                                                
3:36:41 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 3:36 p.m. to 3:39 p.m.                                                                       
                                                                                                                                
            HB 123-ESTABLISH MARIJUANA CONTROL BOARD                                                                        
                                                                                                                                
3:39:09 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  that the final order of  business would be                                                               
HOUSE BILL  NO. 123, "An  Act establishing the  Marijuana Control                                                               
Board;  relating  to  the  powers and  duties  of  the  Marijuana                                                               
Control Board;  relating to the appointment,  removal, and duties                                                               
of the director  of the Marijuana Control Board;  relating to the                                                               
Alcoholic Beverage Control Board;  and providing for an effective                                                               
date."                                                                                                                          
                                                                                                                                
3:39:14 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON stated HB 123 would be held over.                                                                                   
                                                                                                                                
3:39:37 PM                                                                                                                    
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
3:39 p.m.                                                                                                                       

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