Legislature(2015 - 2016)BILL RAY CENTER 208

06/01/2016 01:15 PM LABOR & COMMERCE

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Audio Topic
01:20:25 PM Start
01:20:32 PM HB4002
02:02:22 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                          June 1, 2016                                                                                          
                           1:20 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Kurt Olson, Chair                                                                                                
Representative Jim Colver                                                                                                       
Representative Gabrielle LeDoux                                                                                                 
Representative Cathy Tilton                                                                                                     
Representative Andy Josephson                                                                                                   
Representative Sam Kito                                                                                                         
Representative Mike Chenault (alternate)                                                                                        
MEMBERS ABSENT                                                                                                                
Representative Shelley Hughes, Vice Chair                                                                                       
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Lora Reinbold                                                                                                    
Representative Liz Vazquez                                                                                                      
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 4002                                                                                                             
"An Act  relating to major  medical insurance coverage  under the                                                               
Public  Employees'  Retirement  System   of  Alaska  for  certain                                                               
surviving spouses  and dependent  children of peace  officers and                                                               
firefighters; and providing for an effective date."                                                                             
     - HEARD AND HELD                                                                                                           
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 4002                                                                                                                 
SHORT TITLE: INS. FOR DEPENDS. OF DECEASED FIRE/POLICE                                                                          
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
05/23/16       (H)       READ THE FIRST TIME - REFERRALS                                                                        
05/23/16       (H)       L&C, FIN                                                                                               
05/26/16       (H)       L&C AT 11:00 AM BILL RAY CENTER 208                                                                    
05/26/16       (H)       Heard & Held                                                                                           
05/26/16       (H)       MINUTE(L&C)                                                                                            
05/31/16       (H)       L&C AT 1:15 PM BILL RAY CENTER 208                                                                     
05/31/16       (H)       -- MEETING CANCELED --                                                                                 
06/01/16       (H)       L&C AT 1:15 PM BILL RAY CENTER 208                                                                     
WITNESS REGISTER                                                                                                              
LARRY LANGER, Principal and Consulting Actuary                                                                                  
Buck Consultants                                                                                                                
Chicago, Illinois                                                                                                               
POSITION STATEMENT:  Speaking as  a consultant to the Division of                                                             
Retirement and Benefits,  Department of Administration, presented                                                               
a letter/summary  from Buck Consultants, dated  5/24/16, provided                                                               
in the committee packet.                                                                                                        
MELISSA BISSETT, Senior Consultant, Healthcare Actuary                                                                          
Buck Consultants                                                                                                                
Greenwood Village, Colorado                                                                                                     
POSITION STATEMENT:  Speaking as  a consultant to the Division of                                                             
Retirement   and   Benefits,    Department   of   Administration,                                                               
participated in  the presentation  of a letter/summary  from Buck                                                               
Consultants, dated 5/24/16, provided in the committee packet.                                                                   
MICHELE MICHAUD, Chief Health Official                                                                                          
Division of Retirement and Benefits                                                                                             
Central Office                                                                                                                  
Department of Administration                                                                                                    
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions  during the hearing on HB                                                             
JOAN WILKERSON, Assistant Attorney General                                                                                      
Labor and State Affairs Section                                                                                                 
Department of Law                                                                                                               
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Answered a  question during the  hearing on                                                             
HB 4002.                                                                                                                        
ACTION NARRATIVE                                                                                                              
1:20:25 PM                                                                                                                    
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee meeting to  order at 1:20 p.m.   Representatives Olson,                                                               
LeDoux,   Tilton,   Colver,   Josephson,   Kito,   and   Chenault                                                               
(alternate)  were present  at the  call to  order.   Also present                                                               
were Representatives Reinbold and Vazquez.                                                                                      
        HB4002-INS. FOR DEPENDS. OF DECEASED FIRE/POLICE                                                                    
1:20:32 PM                                                                                                                    
CHAIR OLSON  announced that the  only order of business  would be                                                               
HOUSE BILL NO. 4002, "An  Act relating to major medical insurance                                                               
coverage under the Public Employees'  Retirement System of Alaska                                                               
for  certain surviving  spouses and  dependent children  of peace                                                               
officers and firefighters; and providing for an effective date."                                                                
1:20:52 PM                                                                                                                    
LARRY   LANGER,   Principal    and   Consulting   Actuary,   Buck                                                               
Consultants, informed  the committee  his firm serves  as actuary                                                               
to the Division  of Retirement and Benefits  (DRB), Department of                                                               
Administration (DOA), and directed  attention to a letter/summary                                                               
dated  May 24,  2016,  provided  in the  committee  packet.   Mr.                                                               
Langer said  the letter/summary is Buck  Consultants' fiscal note                                                               
for HB 4002,  a proposal for occupational death  benefits for the                                                               
Public  Employees' Retirement  System (PERS)  for [peace  officer                                                               
and   firefighter   (peace/fire)]   members,  and   the   Defined                                                               
Contribution  Retirement  (DCR)   medical  plans  for  peace/fire                                                               
members.  Also attached is  a summary of proposed provisions, and                                                               
the financial impact of the bill.   The purpose of the bill is to                                                               
provide  major  medical coverage  for  the  survivors of  a  PERS                                                               
member employed  as a peace  officer or firefighter  who suffered                                                               
an  occupational  death.    In addition,  the  bill  removes  the                                                               
requirement that  a peace officer or  firefighter retire directly                                                               
from the DCR  medical plan.  Mr. Langer  described the provisions                                                               
of the bill as follows:                                                                                                         
   ·              Extension of existing PERS occupation death                                                                   
     benefits  which provide  retiree benefits  including system-                                                               
     paid major medical  benefits to survivors of  Tier I members                                                               
     whose deaths  occur as a result  of their job duties.   This                                                               
     bill extends the benefit to Tiers II and III members.                                                                      
   ·              Under the existing PERS DCR plans, no person                                                                  
     is  eligible for  system-paid major  medical benefits.   The                                                               
     draft bill  would allow  for a  100 percent  premium subsidy                                                               
     for  major medical  benefits for  eligible  persons who  are                                                               
     survivors   of  employees   who  were   peace  officers   or                                                               
     firefighters  and whose  death  was occupational.   The  100                                                               
     percent premium subsidy changes  to a normal premium subsidy                                                               
     at Medicare  age.  The health  reimbursement arrangement can                                                               
     then be  used to fund the  portion of the premium  for which                                                               
     the spouse is responsible.                                                                                                 
   ·              The PERS DCR plan requires members to retire                                                                  
     directly from the  plan in order to be  eligible for medical                                                               
     benefits.  To  effectuate the goals of  the legislation, the                                                               
     draft bill  removes that language  from the plan only  as it                                                               
     applies  to  eligible  survivors  of  a  peace  officer  and                                                               
    firefighter whose death occurs as the result of the job.                                                                    
   ·              Corrects the PERS peace officer or firefighter                                                                
     occupational  death benefit  statute to  extend benefits  to                                                               
     the dependent children, in those  instances when there is no                                                               
     surviving spouse,  of peace officers and  firefighters whose                                                               
     deaths occur while  in the performance and  within the scope                                                               
     of their duties.                                                                                                           
MR.  LANGER  stated  the  legislation  would  be  retroactive  to                                                               
January 1, 2013 and the  financial impact of retroactivity is not                                                               
significant due to the small number of those affected.                                                                          
CHAIR OLSON asked what definitions  were used for firefighter and                                                               
peace  officer.   He  read from  definitions  in Alaska  Statutes                                                               
[sections not identified].                                                                                                      
1:27:41 PM                                                                                                                    
MELISSA BISSETT,  Consultant, Buck  Consultants, speaking  as the                                                               
healthcare actuary  for DRB, answered  that the members  who were                                                               
studied  for  the  letter/summary were  indicated  as  peace/fire                                                               
members on the State of Alaska data.                                                                                            
1:28:29 PM                                                                                                                    
MICHELE MICHAUD,  Chief Health Official,  DRB, DOA,  informed the                                                               
committee the  information reported to Buck  Consultants is based                                                               
on occupational  codes in  the retirement  system, and  the peace                                                               
officer  and firefighter  occupational codes  include all  of the                                                             
positions  covered  in  the statutory  definition.    In  further                                                               
response  to  Chair  Olson,  she  said  municipal  employees  are                                                               
included and would be provided with the same benefit.                                                                           
REPRESENTATIVE   JOSEPHSON  asked   why  village   public  safety                                                               
officers (VPSOs)  are excluded  from AS 39.35,  and would  not be                                                               
covered under the proposed bill.                                                                                                
MS. MICHAUD explained  that VPSOs are temporary  employees and do                                                               
not  participate  in  PERS,  thus  including  coverage  for  them                                                               
through   the  retirement   system  would   jeopardize  the   tax                                                               
qualification of PERS.                                                                                                          
REPRESENTATIVE LEDOUX expressed her  understanding that VPSOs are                                                               
not  hired directly  by the  state, but  through grants  given to                                                               
nonprofit  organizations,   which  subsequently  hire   VPSOs  as                                                               
contract employees.                                                                                                             
CHAIR OLSON questioned why VPSOs wear "a State of Alaska badge."                                                                
REPRESENTATIVE  JOSEPHSON  added that  they  are  trained at  the                                                               
Department of Public Safety Training Academy in Sitka.                                                                          
MS. MICHAUD said she did know.                                                                                                  
1:31:25 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  recalled the recent  loss of a  VPSO in                                                               
CHAIR  OLSON  referred  to a  document  entitled,  "Work  Related                                                               
Deaths," dated  5/25/16, provided in the  committee packet, which                                                               
listed twenty-one  fatalities.  The  number one cause of  loss of                                                               
life to  state employees was  airplane or helicopter  crashes; in                                                               
fact, four or five deaths were  from gunshots, three or four were                                                               
from  traffic accidents,  and all  were  spread across  different                                                               
agencies.   He expressed concern  about the  proposed legislation                                                               
creating two classes of employees  - one granted benefits and one                                                               
not - resulting in litigation.                                                                                                  
REPRESENTATIVE  LEDOUX  opined that  a  policy  call to  offer  a                                                               
benefit to only one group of  employees would not cause the state                                                               
to  have liability.   Unless  the state  is making  a distinction                                                               
based  upon   race,  religion,   or  a   suspect  classification,                                                               
distinctions can be  made between groups of people  on a rational                                                               
REPRESENTATIVE  JOSEPHSON  pointed  out  that the  list  of  work                                                               
related  deaths  does  not  include  the  Village  Public  Safety                                                               
Officer from Nondalton.                                                                                                         
CHAIR OLSON  noted other deaths  that were not  listed, including                                                               
REPRESENTATIVE LEDOUX  questioned the state's  procedures related                                                               
to the  status of  VPSOs, such as  their coverage  under workers'                                                               
compensation  law,   and  suggested  these  issues   need  to  be                                                               
discussed at  another time.     In response  to Chair  Olson, she                                                               
said some VPSOs are armed.                                                                                                      
1:36:10 PM                                                                                                                    
MR. LANGER directed  attention to page 3, which was  a table that                                                               
illustrated the financial  impact of the bill.   Costs were split                                                               
between PERS  benefits and  the DCR plan  for "others"  and "P/F"                                                               
and "Total."   The 2015 valuation results are as  of 6/30/15.  He                                                               
said the actuarial  accrued liability is the  amount that ideally                                                               
should  be  in the  fund  now,  which  is  the cost  of  benefits                                                               
accrued.  The  normal cost rate is the cost  of benefits accruing                                                               
during  the year,  and  the amount  shown is  net  of any  member                                                               
contributions   received.      The   total   actuarial   required                                                               
contribution rate reflects  the additional amount to  pay off the                                                               
unfunded liability of the fund.   He pointed out the increases in                                                               
cost  that  result  by  implementing  HB  4002:  the  PERS  total                                                               
actuarial required contribution rate  increases from 3.16 percent                                                               
to 3.17 percent,  and for the DCR plan, the  total increases from                                                               
1.03  percent to  1.04 percent.   However,  Mr. Langer  explained                                                               
that the real  increases are in the P/F percentages,  and he read                                                               
the results  shown on the table.   On page 4,  the table projects                                                               
costs of  the bill for  fiscal year 2017  (FY 17) through  FY 22,                                                               
split between  the defined benefit  and the DCR plans,  and total                                                               
increases,  split between  normal  cost, and  past service  cost.                                                               
The  total projected  cost in  FY 17  is $174,000,  increasing to                                                               
$226,000 by  FY 22.   Mr. Langer  paraphrased from  the following                                                               
assumptions on pages 4 and 5 [original punctuation provided]:                                                                   
     Impact and Methodology                                                                                                     
     Surviving spouses  and dependents  would be  allowed to                                                                    
     commence subsidized  medical coverage  immediately upon                                                                    
     the  occupational  death  of  a  current  member.  This                                                                    
     change did  not impact Tier  1 members of PERS  nor any                                                                    
     members of PERS Others or Teachers.                                                                                        
     The impact to the normal cost  rate for the DB plan for                                                                    
     this  change  was  0.01315%  for  peace/fire  only  and                                                                    
     0.00175%  overall; the  impact  did  increase the  past                                                                    
     service  cost  amortization  resulting  in  a  0.00250%                                                                    
     impact to  the total rate.  Similarly for the  DCR plan                                                                    
     this change was a 0.08262%  increase to the normal cost                                                                    
     rate for  peace/fire members and 0.00950%  overall. The                                                                    
     total   contribution   rate  increased   0.09897%   for                                                                    
     peace/fire  and  0.01138%  overall. These  results  are                                                                    
     slightly lower  than the estimates in  2015 and reflect                                                                    
     June 30,  2015 valuation results and  the premium cost-                                                                    
     sharing upon Medicare eligibility in the DCR plan.                                                                         
     We   assumed  100%   of   eligible  individuals   would                                                                    
     initially elect this subsidized  coverage for all plans                                                                    
     except where  contributions are required  for Medicare-                                                                    
     eligible   survivors   in   the   DCR   plan.   Retiree                                                                    
     contribution provisions  and health  plan participation                                                                    
     are  assumed  to  apply   according  to  DCR  valuation                                                                    
     assumptions upon Medicare  eligibility. In addition, we                                                                    
     assumed that surviving spouses  and dependents would be                                                                    
     eligible  for coverage  under their  current respective                                                                    
     DB  or DCR  retiree medical  plan. For  this study,  we                                                                    
     have assumed the proposed changes  will be effective as                                                                    
     of  January  1,  2013. This  retroactive  applicability                                                                    
     date is de  minimis and does not  materially impact our                                                                    
     calculations below.  In addition, we have  assumed that                                                                    
     on average  45% of  survivors will  be employed  or re-                                                                    
     married  with primary  coverage and  the plan  will pay                                                                    
     secondary.  We  have  assumed   that  the  value  after                                                                    
     coordination  of benefits  is  20% of  the benefit  for                                                                    
     valuation purposes.  Future actuarial  measurements may                                                                    
     differ significantly  from current measurements  due to                                                                    
     plan experience differing from  that anticipated by the                                                                    
     economic  and  demographic  assumptions,  increases  or                                                                    
     decreases expected as part of  the natural operation of                                                                    
     the  methodology  used   for  these  measurements,  and                                                                    
     changes  in  plan  provisions  or  applicable  law.  In                                                                    
     particular, retiree  group benefits  models necessarily                                                                    
     rely on  the use  of approximations and  estimates, and                                                                    
     are sensitive  to changes  in these  approximations and                                                                    
     estimates.  Small  variations in  these  approximations                                                                    
     and  estimates  may  lead  to  significant  changes  in                                                                    
     actuarial  measurements. An  analysis of  the potential                                                                    
     range of  such future  differences is beyond  the scope                                                                    
     of this study.                                                                                                             
1:45:26 PM                                                                                                                    
CHAIR OLSON surmised the state would be responsible for the                                                                     
accrued liability beginning on "day one."                                                                                       
MR. LANGER agreed the state is responsible; however, the terms                                                                  
show the liability is not due to be paid off until 2039, with                                                                   
payments of $19,000 per year.                                                                                                   
CHAIR OLSON opined the state is not in compliance at this time.                                                                 
MR. LANGER affirmed that the state is not 100 percent funded at                                                                 
this time, and a portion of the annual contribution is to pay                                                                   
down  the  unfunded  liability  within  the  retirement  systems.                                                               
Having some unfunded liability is common in public plans.                                                                       
CHAIR OLSON  asked whether  the PERS  total of  actuarial accrued                                                               
liability  of  $7,350,183, would  be  spread  out over  the  next                                                               
twenty to twenty-three years.                                                                                                   
MR. LANGER  explained that the  total accrued liability  does not                                                               
reflect  assets in  the fund  of $7.24  billion, which  means the                                                               
liability is 98.5  percent funded.  Overall,  between pension and                                                               
health care,  the liabilities are  78 percent funded.   He opined                                                               
that for  the health care liability,  the state is "in  very good                                                               
shape," and a little less so "for the pension side."                                                                            
REPRESENTATIVE  LEDOUX  inquired  as   to  how  the  entire  PERS                                                               
liability is related to the effect of the proposed bill.                                                                        
CHAIR OLSON  acknowledged his question  was related to  the total                                                               
liability [not the  portion specific to HB 4002].   He then asked                                                               
whether Alaska is the first state to address this issue.                                                                        
1:53:42 PM                                                                                                                    
MR.  LANGER  related  that the  coverage  of  occupational  death                                                               
benefits varies from state to state.   Some states do cover these                                                               
benefits, as  does Alaska for Tier  1 members.  He  stressed that                                                               
coverage does not mean a lot in  terms of the fund, but does mean                                                               
a lot  to the individuals  affected, and states  make adjustments                                                               
in terms of ancillary benefits.                                                                                                 
CHAIR OLSON asked  whether the state has possible  exposure [to a                                                               
lawsuit] if the benefit is applied to one class of employees.                                                                   
MR. LANGER declined to respond.                                                                                                 
REPRESENTATIVE LEDOUX pointed  out that the state  does not worry                                                               
about liability  related to its distinction  between the benefits                                                               
of Tiers I, II, III, and IV.                                                                                                    
CHAIR OLSON  stressed that his point  is the majority of  loss of                                                               
life has been due to aircraft  crashes resulting in the deaths of                                                               
employees from a variety of agencies.                                                                                           
1:59:18 PM                                                                                                                    
JOAN  WILKERSON,  Assistant  Attorney General,  Labor  and  State                                                               
Affairs Section,  Department of Law, informed  the committee that                                                               
there are separate subgroups - such  as those for police and fire                                                               
-  which   acquire  different  benefits   already,  thus   it  is                                                               
appropriate for  HB 4002 to  extend benefits to police/fire  as a                                                               
group.   Unless  there is  a discriminatory  intent or  forming a                                                               
group on  the basis of a  protected class status, it  is possible                                                               
to  have  a governmental  plan  extend  different benefits  to  a                                                               
REPRESENTATIVE KITO  asked whether  death benefits  are contract-                                                               
negotiable on a bargaining unit basis.                                                                                          
MS. MICHAUD  explained that certain  life, accidental  death, and                                                               
travel  benefits  are  negotiated through  collective  bargaining                                                               
agreements;  $10,000 basic  life and  $100,000 travel  accidental                                                               
are  currently  negotiated in  the  Department  of Public  Safety                                                               
2:01:36 PM                                                                                                                    
[HB 4002 was held over.]                                                                                                        
2:02:22 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
2:02 p.m.                                                                                                                       

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