03/07/2006 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Personnel Board | |
| HB448 | |
| HB475 | |
| HB383 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 475 | TELECONFERENCED | |
| *+ | HB 448 | TELECONFERENCED | |
| + | HB 383 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
March 7, 2006
8:07 a.m.
MEMBERS PRESENT
Representative Paul Seaton, Chair
Representative Carl Gatto, Vice Chair
Representative Bob Lynn
Representative Jay Ramras
Representative Berta Gardner
MEMBERS ABSENT
Representative Jim Elkins
Representative Max Gruenberg
COMMITTEE CALENDAR
CONFIRMATION HEARING(S)
Personnel Board
Al Tamagni, Sr. - Anchorage, Alaska
- CONFIRMATION(S) ADVANCED
HOUSE BILL NO. 448
"An Act relating to special license plates for the Free and
Accepted Masons."
- HEARD AND HELD
HOUSE BILL NO. 475
"An Act describing contributions to the health reimbursement
arrangement plan for certain teachers and public employees;
clarifying eligibility for membership in that health
reimbursement arrangement plan; relating to the 'administrator'
of the Public Employees' Retirement System of Alaska; and
providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 383
"An Act limiting motor vehicle dealer charges for fees and
costs; relating to the disclosures required for certain motor
vehicle transactions; and requiring consumers to be informed of
finance charges paid to a motor vehicle dealer by a financing
institution on the sale of a used motor vehicle."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 448
SHORT TITLE: LICENSE PLATES FOR MASONS
SPONSOR(s): REPRESENTATIVE(s) ELKINS
02/13/06 (H) READ THE FIRST TIME - REFERRALS
02/13/06 (H) STA, FIN
03/07/06 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 475
SHORT TITLE: PUB EMPLOYEE & TEACHER RETIREMENT & SBS
SPONSOR(s): REPRESENTATIVE(s) SEATON
02/13/06 (H) READ THE FIRST TIME - REFERRALS
02/13/06 (H) STA, FIN
02/23/06 (H) STA AT 8:00 AM CAPITOL 106
02/23/06 (H) Heard & Held
02/23/06 (H) MINUTE(STA)
02/28/06 (H) STA AT 8:00 AM CAPITOL 106
02/28/06 (H) Scheduled But Not Heard
03/02/06 (H) STA AT 8:00 AM CAPITOL 106
03/02/06 (H) Heard & Held
03/02/06 (H) MINUTE(STA)
03/07/06 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 383
SHORT TITLE: MOTOR VEHICLE TRANSACTIONS
SPONSOR(s): REPRESENTATIVE(s) GARA
01/20/06 (H) READ THE FIRST TIME - REFERRALS
01/20/06 (H) TRA, STA
02/07/06 (H) TRA AT 1:30 PM CAPITOL 17
02/07/06 (H) -- Meeting Canceled --
02/09/06 (H) TRA AT 1:30 PM CAPITOL 17
02/09/06 (H) Moved CSHB 383(TRA) Out of Committee
02/09/06 (H) MINUTE(TRA)
02/13/06 (H) TRA RPT CS(TRA) NT 1DP 4NR
02/13/06 (H) DP: KAPSNER;
02/13/06 (H) NR: SALMON, NEUMAN, GATTO, ELKINS
03/07/06 (H) STA AT 8:00 AM CAPITOL 106
WITNESS REGISTER
ALFRED L. TAMAGNI, SR., Appointee
to the Personnel Board
Anchorage, Alaska
POSITION STATEMENT: Appeared before the committee as appointee
during the confirmation hearing for the Personnel Board.
JENNIFER BAXTER, Staff
to Representative Jim Elkins
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced HB 448 on behalf of
Representative Elkins, sponsor.
DUANE BANNOCK, Director
Division of Motor Vehicles
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
448.
KATIE SHOWS, Staff
to Representative Paul Seaton
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions related to amendments on
behalf of Representative Seaton, sponsor of HB 475.
TRACI CARPENTER, Project Manager
Health Benefits Section
Division of Retirement & Benefits
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Answered a question during the hearing on
HB 475.
MELANIE MILLHORN, Director
Division of Retirement & Benefits
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
475.
DORIS ROBBINS
Fairbanks, Alaska
POSITION STATEMENT: Testified on behalf of herself during the
hearing on HB 475.
CHARLES GALLAGHER
Fairbanks, Alaska
POSITION STATEMENT: Testified on behalf of himself during the
hearing on HB 475.
REPRESENTATIVE LES GARA
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as sponsor of HB 383.
CLYDE (ED) SNIFFEN, JR., Assistant Attorney General
Commercial/Fair Business Section
Civil Division (Anchorage)
Department of Law
Anchorage, Alaska
POSITION STATEMENT: Testified during the hearing on HB 383.
JIM ARPINO
Affordable Used Cars, Fairbanks/Anchorage;
Alaska Auto Dealers Association (AADA)
Fairbanks, Alaska
POSITION STATEMENT: Testified on behalf of both entities during
the hearing on HB 383.
JOHN COOK, Legislative Director
Alaska Automobile Association
(No address provided)
POSITION STATEMENT: Testified on behalf of the association, and
also on behalf of Aurora Motors, during the hearing on HB 383.
ACTION NARRATIVE
CHAIR PAUL SEATON called the House State Affairs Standing
Committee meeting to order at 8:07:49 AM. Representatives
Gatto, Lynn, Gardner, and Seaton were present at the call to
order. Representative Ramras arrived as the meeting was in
progress.
^Confirmation Hearing(s)
^Personnel Board
8:08:09 AM
CHAIR SEATON announced that the first order of business was the
confirmation hearing for the Personnel Board.
8:08:14 AM
ALFRED L. TAMAGNI, SR., Appointee to the Personnel Board,
offered a brief personal history and reasons for his interest in
the position. He proffered that his background in finance,
insurance, pension, administration, and design, makes him
qualified to serve fairly, honestly, and decently on the
Personnel Board.
8:09:40 AM
CHAIR SEATON said he appreciates anyone who understands the
issues of the Public Employees' Retirement System (PERS) and the
Teachers' Retirement System (TRS).
8:10:00 AM
REPRESENTATIVE GARDNER moved to advance the name of Al Tamagni,
Sr., to the joint session of the House and Senate; she requested
unanimous consent. There being no objection, the nomination of
Al Tamagni, Sr., as appointee to the Personnel Board was
advanced.
HB 448-LICENSE PLATES FOR MASONS
8:11:35 AM
CHAIR SEATON announced that the next order of business was HOUSE
BILL NO. 448, "An Act relating to special license plates for the
Free and Accepted Masons."
8:11:47 AM
JENNIFER BAXTER, Staff to Representative Jim Elkins, Alaska
State Legislature, introduced HB 448 on behalf of Representative
Elkins, sponsor. The proposed bill would amend AS 28.10.181, by
adding a new subsection that would allow the Department of
Administration to "design and issue registration plates
representing the Free and Accepted Masons of Alaska." In
response to a request from Representative Gardner for
information on the Free and Accepted Masons of Alaska, she
suggested Mr. Van Horn would provide the information at the next
hearing of the bill.
8:13:25 AM
REPRESENTATIVE LYNN asked if the bill allows the design of a
registration plate, or "merely to make it possible for a Mason
to have a plate of their own."
8:13:36 AM
MS. BAXTER offered her understanding that it would be "for their
own plate, but it'll be their own design."
8:13:54 AM
CHAIR SEATON suggested Mr. Bannock from the Division of Motor
Vehicles could provide further information.
8:14:11 AM
REPRESENTATIVE LYNN opined that the Free and Accepted Masons is
an organization dating back to the foundation of the nation. He
named the Knights of Columbus as another such honorable
organization, "which would kind of balance the scales a bit."
8:15:21 AM
CHAIR SEATON told Ms. Baxter that the committee would like a
fact sheet detailing the Free and Accepted Masons. Furthermore
he asked that the sponsor supply a listing of the designer
plates that exist to date. He observed that the committee
packet included a zero fiscal note, and he said the committee
would address that issue with Mr. Bannock.
8:16:12 AM
DUANE BANNOCK, Director, Division of Motor Vehicles, Department
of Administration, in response to Representative Lynn's original
question, said he believes the bill would serve to bring about
both the design of a registration plate, as well as the issuance
of the plate through the division. In response to a follow-up
question from Representative Lynn, said several groups have
approached the division to get a license plate. In order to
keep the costs as low as possible, he said, the actual artwork
would be provided by the sponsor, and for $300 the plate
manufacturer could form the plate. There is a certain format
that must be followed regarding plate design, he added.
8:18:29 AM
REPRESENTATIVE GARDNER brought attention to the last line of the
bill, which read:
The department may disapprove the issuance of
registration plates under this subsection when the
requested plates are a duplication of an existing
registration.
REPRESENTATIVE GARDNER stated her assumption that there may be
other grounds on which a design might be disapproved.
8:18:51 AM
MR. BANNOCK answered that's correct. He said:
That line seems to be a duplicative line from other
sections within this same chapter, which specifically
have to do with the concept that it is not the
background of the license plate that makes a license
plate different, but rather the letter, and numbers,
and the combinations thereof on them. ... If my
license plate says "DUANE" ..., just because the DUANE
plate is on a gold background, that doesn't mean that
some other Duane could get the DUANE plate on the Free
Mason plate.
8:19:47 AM
MR. BANNOCK responded to a series of questions from
Representative Gatto with the following answers: One, there is
currently no paramedic/fire fighter plate in existence. Two, he
has not rejected a group in the three years that he has been the
director of the division. Three, there is a fee of $30 that is
a one-time-only charge [for a vanity plate]. Four, there is a
$5 fee to transfer a vanity plate from one vehicle to the next.
Five, he has not been faced with having to turn down anyone's
request yet; however, if he did make that decision it could be
trumped by hearing officers.
CHAIR SEATON offered his understanding that "there has to be a
bill to come through to allow a group to apply to you for a
specialty plate, other than the regular vanity plates."
8:22:03 AM
MR. BANNOCK answered that's 100 percent correct. In response to
a follow-up question from Chair Seaton, he said the division is
contacted no less than a dozen times a year, but not many of
those contacts make it to the legislative process.
8:23:16 AM
REPRESENTATIVE GATTO asked what happens to user rights to a
vanity plate after the original owner has passed away.
8:23:28 AM
MR. BANNOCK responded that "after 12 months of nonexpiration,
the plate becomes available again."
8:23:41 AM
CHAIR SEATON closed public testimony.
CHAIR SEATON announced that HB 448 was heard and held.
HB 475-PUB EMPLOYEE & TEACHER RETIREMENT & SBS
[Contains discussion of SB 141 and SB 293.]
8:24:49 AM
CHAIR SEATON announced that the next order of business was HOUSE
BILL NO. 475, "An Act describing contributions to the health
reimbursement arrangement plan for certain teachers and public
employees; clarifying eligibility for membership in that health
reimbursement arrangement plan; relating to the 'administrator'
of the Public Employees' Retirement System of Alaska; and
providing for an effective date."
8:25:12 AM
KATIE SHOWS, Staff to Representative Paul Seaton, Alaska State
Legislature, on behalf of Representative Seaton, sponsor of HB
475, suggested that since the answers to questions submitted to
the Division of Retirement & Benefits by the committee at the
last hearing were still forthcoming, the committee may best be
served by proceeding to discussion of amendments.
[CHAIR SEATON handed the gavel over to Vice Chair Gatto.]
8:26:45 AM
REPRESENTATIVE SEATON moved to adopt Amendment 1, which read as
follows [original punctuation provided, but with some formatting
changed]:
Page 5, following line 8:
Insert new bill sections to read:
* Sec. 10. AS 14.25. is amended by adding new
sections to read:
Sec. AS 14.25.486. Disability benefit adjustment.
(a) Once each year, the administrator shall increase
disability benefits. The amount of the increase is a
percentage of the current disability benefit equal to
the lesser of 75 percent of the increase of the cost
of living in the preceding calendar year or nine
percent.
(b) If a disabled member was not receiving a
benefit during the entire preceding calendar year, the
increase in the benefit under this section shall be
adjusted by multiplying it by a fraction, the
numerator of which is the number of months for which
the benefit was received in the preceding calendar
year and the denominator of which is 12.
(c) An increase in benefit payments under this
section is effective July 1 of each year and is based
on the percentage increase in the consumer price index
for urban wage earners and clerical workers for
Anchorage, Alaska during the previous calendar year as
determined by the United States Department of Labor,
Bureau of Labor Statistics.
(d) Benefit adjustments under this section shall
terminate the last day of the month following the date
in which a disabled member is no longer receiving a
disability benefit under AS 14.25.485.
Sec. AS 14.25.488. Survivor's pension
adjustment. (a) Once each year, the administrator
shall increase payments to persons age 60 or older
receiving a survivor's pension under AS 14.25.485(i)
or AS 14.25.487(c) and to persons who have received a
survivor's pension under AS 14.25.485(i) or AS
14.25.487(c) for at least 8 years who are not
otherwise eligible for an increase under this section.
(b) The amount of the increase is a percentage of
the current survivor's pension equal to the lesser of
50 percent of the increase in the cost of living in
the preceding calendar year or six percent.
(c) If a survivor was not receiving a pension
during the entire preceding calendar year, the
increase in the survivor's pension under this section
shall be adjusted by multiplying it by a fraction, the
numerator of which is the number of months for which
the pension was received in the preceding calendar
year and the denominator of which is 12.
(d) The administrator shall increase the initial
survivor's pension paid to a survivor of a member who
died while receiving disability benefits by a
percentage equal to the total cumulative percentage
that has been applied to the member's disability
benefit under AS 14.25.486.
(e) An increase in benefit payments under this
section is effective July 1 of each year and is based
on the percentage increase in the consumer price index
for urban wage earners and clerical workers for
Anchorage, Alaska during the previous calendar year as
determined by the United States Department of Labor,
Bureau of Labor Statistics.
(f) Pension adjustments under this section shall
terminate the last day of the month following the date
in which a survivor is no longer receiving a
survivor's pension under AS 14.25.485(i) or AS
14.25.487(e).
Sec. AS 14.25.489. Premiums for retiree major
medical insurance coverage upon termination of
disability benefits or survivor's pension. The premium
for retiree major medical insurance coverage payable
by a member whose disability benefit is terminated
under AS 14.25.485(g) or by an eligible survivor whose
survivor pension is terminated under AS 14.25.485(i)
or AS 14.25.487(e) when the member would have been
eligible for normal retirement if the member had
survived shall be determined under AS 14.25.480(g)(2)
as if the member or survivor were eligible for
Medicare.
Renumber the following bill sections accordingly.
8:27:11 AM
REPRESENTATIVE GARDNER objected for discussion purposes.
8:27:35 AM
MS. SHOWS spoke to Amendment 1. She directed attention to the
last paragraph on the second page of the amendment and said the
intent of the language is to clarify that if an employee reaches
normal retirement age before the age of Medicare eligibility,
he/she would receive benefits "as if they were Medicare age
eligible." She explained that that would mean the plan would
pay a percentage of the person's premium for health care. In
response to questions from Vice Chair Gatto, she offered
examples.
8:33:12 AM
REPRESENTATIVE SEATON added that the plan would pay the premium
for the person who reaches retirement eligibility until that
person reaches Medicare eligibility.
8:34:45 AM
REPRESENTATIVE GARDNER offered a scenario as follows:
I have ... three people with disabilities [who]
qualify under this, and they've reached the normal
retirement age, and now I'm also responsible for their
90 percent health premium, but you don't have any in
your system. So, are my costs higher than yours, or
is this averaged across the entire pool.
8:35:40 AM
REPRESENTATIVE SEATON said that issue is clarified within an
upcoming amendment. He said the payments from all the employers
will go into a system-wide trust account.
8:37:37 AM
MS. SHOWS, in response to a question from Vice Chair Gatto, said
once a person has reached normal retirement age, he/she has
access to the defined contribution retirement count. There is
an increase of 75 percent of the Anchorage consumer price index
(CPI), which occurs the year after the member becomes disabled;
therefore, once the member becomes disabled, his/her disability
benefit would increase annually by 75 percent of the Anchorage
CPI.
VICE CHAIR GATTO asked, "Instead of what?"
MS. SHOWS replied, "Instead of not increasing at all and being
40 percent of the salary that they made ... the last year of
employment."
VICE CHAIR GATTO asked for confirmation that "that salary would
be 20 years old now, and so we're trying to fix that
calculation."
MS. SHOWS indicated that Vice Chair Gatto is correct. She
added, "And we're marrying current language ... for defined
benefit employees."
8:38:39 AM
REPRESENTATIVE SEATON noted that another amendment in the
committee packet addresses the death and disability benefit, so
that under the defined contribution plan a person cannot be
taking out defined contribution payments out while
simultaneously receiving disability benefits. In response to a
question from Vice Chair Gatto he offered his understanding that
a person can choose at normal retirement age to "take your DC
plan out" and then "not continue on with disability benefits"
8:39:49 AM
REPRESENTATIVE GARDNER removed her objection to Amendment 1.
There being no further objection, Amendment 1 was adopted.
8:40:03 AM
REPRESENTATIVE SEATON moved to adopt Amendment 2, which read as
follows [original punctuation provided, but with some formatting
changed]:
Page 14, following line 10:
Insert new bill sections to read:
* Sec. 37. AS 39.35 is amended by adding new sections
to read:
Sec. AS 39.35.891. Disability benefit and
disabled peace officer or fire fighter retirement
benefit adjustment. (a) Once each year, the
administrator shall increase disability benefits and
retirement benefits elected by disabled peace officers
or firefighters under AS 39.35.890(h)(2). The amount
of the increase is a percentage of the current
disability benefit or retirement benefit equal to the
lesser of 75 percent of the increase of the cost of
living in the preceding calendar year or nine percent.
(b) If a disabled member was not receiving a
benefit during the entire preceding calendar year, the
increase in the benefit under this section shall be
adjusted by multiplying it by a fraction, the
numerator of which is the number of months for which
the benefit was received in the preceding calendar
year and the denominator of which is 12.
(c) If a disabled peace officer or fire fighter
elects to receive a retirement benefit in the amount
calculated under AS 39.35.890(h)(2), the administrator
shall, at the time the disabled peace officer or
firefighter is appointed to retirement, increase the
retirement benefit by a percentage equal to the total
cumulative percentage that has been applied to the
disabled peace officer's or fire fighter's disability
benefit under this section.
(d) An increase in benefit payments under this
section is effective July 1 of each year and is based
on the percentage increase in the consumer price index
for urban wage earners and clerical workers for
Anchorage, Alaska during the previous calendar year as
determined by the United States Department of Labor,
Bureau of Labor Statistics.
(e) Benefit adjustments under this section shall
terminate the last day of the month following the date
in which a disabled member is no longer receiving a
disability benefit under AS 39.35.890 unless the
member is a disabled peace officer or fire fighter and
has chosen a retirement benefit under AS
39.35.890(h)(2).
Sec. AS 39.35.893. Survivor's pension
adjustment. (a) Once each year, the administrator
shall increase payments to persons age 60 or older
receiving a survivor's pension under AS 39.35.890(k)
or AS 39.35.892(c) and to persons who have received a
survivor's pension under AS 39.35.890(k) or AS
39.35.892(c) for at least 5 years who are not
otherwise eligible for an increase under this section.
(b) The amount of the increase is a percentage of
the current survivor's pension equal to the lesser of
50 percent of the increase in the cost of living in
the preceding calendar year or six percent.
(c) If a survivor was not receiving a pension
during the entire preceding calendar year, the
increase in the survivor's pension under this section
shall be adjusted by multiplying it by a fraction, the
numerator of which is the number of months for which
the pension was received in the preceding calendar
year and the denominator of which is 12.
(d) The administrator shall increase the initial
survivor's pension paid to a survivor of a member who
died while receiving disability benefits by a
percentage equal to the total cumulative percentage
that has been applied to the member's disability
benefit under AS 39.35.891.
(e) An increase in benefit payments under this
section is effective July 1 of each year and is based
on the percentage increase in the consumer price index
for urban wage earners and clerical workers for
Anchorage, Alaska during the previous calendar year as
determined by the United States Department of Labor,
Bureau of Labor Statistics.
(f) Pension adjustments under this section shall
terminate the last day of the month following the date
in which a survivor is no longer receiving a
survivor's pension under AS 39.35.890(k) or AS
39.35.892(e).
Sec. AS 39.35.894. Premiums for retiree major
medical insurance coverage upon termination of
disability benefits or survivor's pension. The premium
for retiree major medical insurance coverage payable
by an employee whose disability benefit is terminated
under AS 39.35.890(g) or by an eligible survivor whose
survivor pension is terminated under AS 39.35.890(k)
or AS 39.35.892(e) when the employee would have been
eligible for normal retirement if the employee had
survived shall be determined under AS 39.35.880(g)(2)
as if the employee or survivor were eligible for
Medicare.
Renumber the following bill sections accordingly.
8:40:26 AM
REPRESENTATIVE GARDNER objected for discussion purposes.
REPRESENTATIVE SEATON explained that Amendment 2 mirrors
[Amendment 1], but addresses police and fire.
REPRESENTATIVE GARDNER removed her objection.
8:41:06 AM
VICE CHAIR GATTO objected for discussion purposes.
8:41:20 AM
MS. SHOWS noted that the language of the amendment that is
specific to police/fire is [subsection] (c). In response to a
question from Vice Chair Gatto, she said Amendment 2 would apply
to a police/fire defined contribution member hired after July 1,
2006. She continued:
They become disabled; they receive a disability
benefit - the same disability benefit as their Tier
III [defined benefit] colleague. And when they hit
normal retirement age, at that point they make a
decision: Do I want to collect a lump sum - my
defined contribution account - or do I want to
continue receiving a monthly benefit ... calculated in
the same manner as my Tier III colleague when he or
she retires?
8:42:36 AM
REPRESENTATIVE SEATON clarified as follows:
The only way this applies to any employee is, first of
all, if they're hired after July 1, 2006, or if their
employer elects to allow nonvested employees to
convert from their defined benefit to a defined
contribution plan and if that individual employee also
elects to change. So, it's not forced on any
employee; but it's not available to every employee
either.
CHAIR SEATON offered further details.
VICE CHAIR GATTO delivered a caveat to his fellow police/fire
workers to consider carefully before making elections that are
irrevocable.
8:44:23 AM
REPRESENTATIVE SEATON proffered that before anyone will be
making those elections, the Division of Retirement & Benefits
will provide a personal spread sheet showing the outcome
comparisons between a DC and DB plan.
8:45:09 AM
VICE CHAIR GATTO removed his objection to Amendment 2. There
being no further objection, Amendment 2 was adopted.
8:45:37 AM
REPRESENTATIVE SEATON moved to adopt Amendment 3, which read as
follows [original punctuation provided, but with some formatting
changed]:
Page 10, following line 2:
Insert new bill sections to read:
"* Sec. 25. AS 39.35.250(a) is amended to read:
(a) An employer shall make contributions to the
plan in amounts determined in accordance with this
section. For the purposes of this section, the past
service date for each employer is the entry date of
the employer or December 31, 1972, whichever is later.
After December 31, 1972, if amendments to AS 39.35.095
- 39.35.680 are enacted that substantially affect
benefits accrued before the effective date of the
amendment, the past service date will be changed to
December 31 of the year immediately preceding that in
which the amendment is enacted. The contribution rate
is the sum of the consolidated employer normal cost
rate and the past service rate as certified by the
board.
* Sec. 26. AS 39.35.250(b) is amended to read:
(b) In (a) of this section, "consolidated
employer normal cost rate" means the percentage of
compensation of all active employees in the plan
which, if paid over the period of [THEIR] credited
service of active employees in the plan after the
[THEIR] past service date and when combined with all
employee contributions to the plan, is sufficient to
provide the benefits earned after such past service
dates. This percentage is [UNIFORMLY] determined at
the plan levelfor all employers and is applicable to
each employer.
* Sec. 27. AS 39.35.250(c) is amended to read:
(c) In (a) of this section, "past service rate"
means the percentage of compensation of all active
employees in the system [PLAN] necessary to provide
the annual amount required to amortize the unfunded
obligations of the employer for benefits earned by the
employer's members in the plan before the [EMPLOYER'S
PAST SERVICE DATE] date of the last actuarial
valuation over a period not to exceed [40 YEARS] the
maximum allowed by the governmental accounting
standards board. [THE PERIOD OF AMORTIZATION BEGINS AT
THE PAST SERVICE DATE OF EACH EMPLOYER.] The
percentage is separately determined for each employer.
* Sec. 28. AS 39.35.270 (a) is amended to read:
(a) The amount of each employer's contributions
shall be determined by applying the [EMPLOYER'S
CONTRIBUTION] consolidated employer normal cost rate
[,AS CERTIFIED BY THE BOARD,] to the total
compensation paid to the employer's active employees
of the [EMPLOYER] plan and by applying the employer's
past service rate to the total compensation paid to
the employer's active employees in the system for each
payroll period [AND BY], including any adjustments to
contributions required by AS 39.35.520 (a). This
amount shall be remitted by the employer to the
administrator in accordance with AS 39.35.610."
Renumber the following bill sections accordingly.
Reason: The current statutes defining contributions
by employers calculate the contribution rates as a
percentage of the "compensation of all active
employees in the plan." The "plan" is defined as the
retirement plan established under AS 39.35.095-
39.35.680, or the DB plan. This amendment allows for
the normal cost rate to be applied to the payroll base
of the employer's DB plan members and the past service
rate to be applied to the payroll base of all the
employer's members in the system, thus keeping
employer contribution rates for the DB plan lower than
would otherwise be calculated.
Consequence: Employer rates for past service costs
under the DB plan will continue to rise as the
amortized liability is applied to a shrinking payroll
paid to members of the DB plan. However, this will
neither increase the employers [sic] liability nor
will it relieve the employers of the liability, it
merely restates the liability as a higher percentage
of applicable payroll.
8:45:49 AM
REPRESENTATIVE GARDNER objected [for discussion purposes].
REPRESENTATIVE SEATON spoke to Amendment 3.
8:46:42 AM
MS. SHOWS confirmed that Amendment 3 defines the consolidated
normal cost.
8:47:10 AM
REPRESENTATIVE SEATON, regarding changes to Section 27 as shown
in Amendment 3, said the language is being changed to ensure
that the legislation meets with "what's currently approved and
will be approved in the future government accounting issues."
8:47:54 AM
REPRESENTATIVE GARDNER asked "if this is a reference to the
possibility of having a ... later retirement date, later
Medicare eligibility date - that kind of thing."
8:48:12 AM
REPRESENTATIVE SEATON answered no. He explained that there had
been a word switch that had an unintentional consequence of not
defining the entire wage base as being what will be used as the
calculation of the cost rates.
8:50:57 AM
REPRESENTATIVE GARDNER removed her objection.
8:51:05 AM
VICE CHAIR GATTO objected for discussion purposes. He observed
that many changes are being proposed and said it is difficult to
collect all the data and review it.
8:51:56 AM
REPRESENTATIVE SEATON referred to the footnotes in Amendment 3
[showing the reason and consequence for the amendment].
VICE CHAIR GATTO removed his objection to Amendment 3. There
being no further objection, Amendment 3 was adopted.
8:53:11 AM
REPRESENTATIVE SEATON moved to adopt Amendment 4, which read as
follows [original punctuation provided, but with some formatting
changed]:
Page 2, following line 11:
Insert new bill sections to read:
"* Sec. 2. AS 14.25.070(a) is amended to read:
(a) An employer shall make contributions to the
plan in accordance with this section and as certified
by the board in an amount sufficient, after
subtracting member contributions, to provide the
benefits of AS 14.25.009 - 14.25.220. The amount
shall be calculated by applying the normal cost rate
to the sum total of the base salaries paid to members
in the plan and by applying the past service rate to
the sum total of the base salaries paid to members in
the system[AN EMPLOYER CONTRIBUTION RATE, CERTIFIED BY
THE BOARD, AGAINST THE SUM TOTAL OF THE BASE SALARIES
PAID TO MEMBERS], including any adjustments to
contributions required by as 14.25.173(a). This
amount shall be remitted by the employer to the
administrator in accordance with AS 14.25.065.
* Sec 3. AS 14.25.070 is amended by adding a new
section to read:
(c) In (a) of this section, "normal cost rate"
means the percentage of compensation of all active
members in the plan which, when combined with the
member contribution rate of active members in the
plan, is sufficient to provide the benefits which are
expected to be credited with respect to service during
the year beginning after the last valuation date.
This percentage is uniformly determined for all
employers and is applicable to each employer.
* Sec 4. AS 14.25.070 is amended by adding a new
section to read:
(d) In (a) of this section, "past service rate"
means the percentage of compensation of all active
members in the system necessary to provide the annual
amount required to amortize the unfunded obligations
of the employers for benefits earned by members in the
plan before the date of the last actuarial valuation
over a period not to exceed the maximum period allowed
by the governmental accounting standards board. This
percentage is uniformly determined for all employers
and is applicable to each employer."
Renumber the following bill sections accordingly.
Reason: The statutes defining contributions by
employers reference contributions to the "plan," and
specify that the employer contribution rate will be
applied to the salaries paid to "members." The "plan"
is defined as the retirement plan established under AS
14.25.009-14.25.220, or the DB plan. A member in the
DB plan is defined as "a person eligible to
participate in the plan and who is covered by the
plan….". This amendment allows for the normal cost
rate to be applied to the payroll base of the
employer's DB plan members and the past service rate
to be applied to the payroll base of all the
employer's members in the system, thus keeping
employer contribution rates for the DB plan lower than
would otherwise be calculated.
Consequence: Employer rates for past service costs
under the DB plan will continue to rise as the
amortized liability is applied to a shrinking payroll
paid to members of the DB plan. However, this will
neither increase the employers [sic] liability nor
will it relieve the employers of the liability, it
merely restates the liability as a higher percentage
of applicable payroll.
8:53:38 AM
VICE CHAIR GATTO objected for discussion purposes.
REPRESENTATIVE SEATON explained that Amendment 4 is the same as
the previous amendment, but relates to TRS.
VICE CHAIR GATTO removed his objection to Amendment 4. There
being no further objection, Amendment 4 was adopted.
8:53:57 AM
REPRESENTATIVE SEATON moved to adopt Amendment 5, which read as
follows [original punctuation provided, but with some formatting
changed]:
Page 2, line 27, following "plan":
Insert: ", applied as a percentage of compensation paid to
members in the plan from July 1 to the following June
30,"
Page 11, line 11, following "plan":
Insert: ", applied as a percentage of compensation paid to
employees in the plan from July 1 to the following
June 30,"
Page 18, following line 21:
Insert new bill section to read:
"Sec. 51. Sec. 134 of ch.9, FSSLA 2005, is amended
to read:
Sec. 134. The uncodified law of the State of
Alaska is amended by adding a new section to read:
EMPLOYER CONTRIBUTIONS FOR OCCUPATIONAL
DISABILITY AND DEATH BENEFITS IN THE PUBLIC EMPLOYEES'
DEFINED CONTRIBUTION RETIREMENT PLAN FOR THE FIRST
FISCAL YEAR THE PLAN IS IN EFFECT.
Notwithstanding AS 39.35.750(e), added by sec.
122 of this Act, for the first fiscal year in which
the public employees' defined contribution retirement
plan is in effect, the employer contribution to fully
fund the cost of providing occupational disability and
occupational death benefits under AS 39.35.890 and
39.35.892 shall be equal to
(1) 0.4 percent of the compensation for peace
officers and fire fighters who are members in the
plan; and
(2) 0.3 percent of the compensation for all
other employees who are members in the plan."
Renumber the following bill sections accordingly.
8:54:08 AM
REPRESENTATIVE GARDNER objected for discussion purposes.
8:54:17 AM
MS. SHOWS stated that Amendment 5 clarifies how the first year
of death and disability benefits for PERS and TRS members will
be paid. She noted that [paragraphs] (1) and (2) in Section 51,
as shown in Amendment 5, set out the percentage that will be
paid in that first year. After that point, she explained, the
percentage will be actuarially calculated. She said, "So, this
is so we make sure we can start off with something in the pot."
8:55:07 AM
REPRESENTATIVE SEATON, in response to a question from Vice Chair
Gatto, confirmed that village public safety officers (VPSOs) are
not included in police/fire.
8:55:14 AM
VICE CHAIR GATTO remarked that medics are often included with
police/fire, but historically that has not always been the case.
He said he wants the definitions of terms to be clear in this
regard.
8:56:00 AM
MS. SHOWS responded that the Division of Retirement & Benefits
has prepared comments on the definition of peace officer.
8:56:17 AM
VICE CHAIR GATTO removed his objection to Amendment 5. There
being no further objection, Amendment 5 was adopted.
8:57:40 AM
VICE CHAIR GATTO asked if there are other groups beside VPSOs
that could approach the legislature and say they are qualified
under these statutes.
8:58:49 AM
TRACI CARPENTER, Project Manager, Health Benefits Section,
Division of Retirement & Benefits, Department of Administration,
said the director of the Division of Retirement & Benefits is
probably better qualified to answer that question.
Notwithstanding that, she offered her belief that Section 45 of
HB 475 is a duplication of a definition in statute and specifies
the definition of a police officer and fire fighter. She said
AS 39.35.680 lists the types of job classes considered to be
part of the police officer and fire fighter group. She said
there certainly could be groups that could approach the division
requesting to be included under that classification. She
offered her understanding that juvenile probation officers have
attempted that in the past.
VICE CHAIR GATTO asked if an animal control officer is
considered a peace officer.
9:00:05 AM
MELANIE MILLHORN, Director, Division of Retirement & Benefits,
Department of Administration, answered no. She stated, "The
statute provides those classifications that are specifically
identified as police and fire fighter, and the legislature has
the purview to determine who will be included for police and
fire fighters under that definition." She said the division
looks at both the definition of police and fire fighters and the
regulation that encompasses the body of work that is performed,
in order to make a determination if an individual qualifies
under that job category. She continued:
While VPSOs were asked to be included as part of
police and fire fighters, the division sought a
private-letter ruling to determine if they would be
includable, or not, and the private-letter ruling in
2003 determined that they were not includable, because
... they're hired by village corporations. And
because of that, the village corporation has control
over village public safety officers, with regard to
hiring and firing, and that is not under the control
under [a] political subdivision or municipality, which
would then allow them to be included in [the Public
Employees' Retirement System (PERS)].
9:02:14 AM
MS. MILLHORN, in response to a question from Vice Chair Gatto
regarding full-time, part-time, and volunteer work, said in
order for an individual to receive PERS credit and service,
he/she would have to meet all of the criteria in statutory
definitions. In response to a follow-up question from Vice
Chair Gatto, she confirmed that there is language in statute
that refers to compensation.
9:03:03 AM
VICE CHAIR GATTO asked, "Based on that statement, who would be
excluded in those categories?"
MS. MILLHORN asked for clarification.
VICE CHAIR GATTO responded as follows:
The paid people [are] not a problem. Then we have on-
call people who are not paid unless they respond.
They [get a] call at two in the morning; they go out
for a traffic accident; they come back [and] they
[get] $25 or $10 an hour - some number. Then there
are people who get the same call, and respond, and
come back, and receive zero [payment]. They do the
same job. Are they both qualified under the statute
to get the benefits?
9:03:30 AM
MS. MILLHORN replied, "I do not know that specific question
given the scenario that you provided, but I would be happy to
research it and get back to you."
VICE CHAIR GATTO added:
I think Chugiak Volunteer Fire Department has,
certainly, paid personnel full-time - the fire chief,
et cetera. ... They may have some on-call people who
are paid all the time, but they have some ... people
that will be there paid all the time, but not all.
Similarly in [Matanuska-Susitna (Mat-Su)] where
they're paid. Now those are all big communities.
The concern I have is what happens in Homer, ...
Wrangell, ... [and] Nondalton; what happens in other
places where ... departments, ... fire trucks, ...
[and] training exists. They're volunteers, they show
up, they do the job, they go home. Are they somehow
excluded? And if so, there must be strong
justification and it's probably already in the
statute, but I'm not aware of having seen it yet.
9:05:00 AM
VICE CHAIR GATTO, regarding a previous question relating to
surviving spousal benefits, said he wants to know if it is
possible to "pay someone less than the amount they have earned
because they received an occupational disability ... past their
normal retirement." In response to a question from Chair Seaton
he said he is asking the question in relation to the defined
benefit retirement plan.
9:06:42 AM
MS. CARPENTER offered the following:
Once a disabled member ... first qualifies for a
normal retirement, that normal retirement - and I'll
start with under the defined benefits plan right now -
would then be calculated based on that member's
highest years' salary, according to the formula, and
the number of years of service. While that person is
disabled, receiving ... disability benefits, those
years ... of disability payments are counting towards
service. So, once the person reaches a normal
retirement age, based on their age and/or years of
service, then it's a normal retirement calculation.
If that person had been working for five years prior
to the disability, then the division would take the
highest three years, if that is the formula, for their
tier, and use that salary to calculate the benefit.
So, the disability benefit goes away and the normal
retirement benefit is calculated.
9:07:58 AM
VICE CHAIR GATTO said that he had been considering a person who
reached normal retirement, continued to work, and became
disabled during the time working past normal retirement. He
asked how that person's benefit is calculated.
9:08:29 AM
MS. CARPENTER answered that because that person has continued to
work all those years, he/she is eligible for a normal
retirement; therefore, the division would "use the highest
salaries within the entire work history." In response to a
question from Vice Chair Gatto, she said current statute defines
disability as being permanent and total. In response to a
follow-up question from Vice Chair Gatto, she said it seems
reasonable that if a person is no longer able to work, a normal
retirement - if that person was eligible for one - would be a
better benefit than accepting a disability benefit.
9:09:09 AM
VICE CHAIR GATTO asked, "And so, is it the higher of the normal
benefit or the disability benefit, or is it defined as the
disability benefit?"
MS. CARPENTER answered, "I don't believe it is defined, but we
can check with our retirement manager ...."
VICE CHAIR GATTO said, "That's the center of the question ....
Given the circumstances where we're beyond the time of normal
retirement and continue to work, what happens ... to them?"
9:10:29 AM
MS. CARPENTER, in response to a question from Vice Chair Gatto,
stated that the surviving spouse does not receive the same
retirement benefit as the deceased spouse. The benefit of the
survivor depends on which joint survivor selection was made by
the member, if any.
9:11:02 AM
VICE CHAIR GATTO said:
Let's just say, "No children [and] 100 percent
[selection]." Could that 100 percent benefit
recipient - the spouse who survives - actually get a
lower pension under the circumstance of saying, "Well,
they didn't work 20 years or 30; they actually worked
32," and there's a penalty for that that says, "Well,
you worked 32 years, you got a certain pension, but
your spouse, who at that moment is looking forward to
your pension actually will get a reduction." That's
the question. If so, I'd like to know that.
MS. CARPENTER stated her belief that the answer to that question
is yes.
VICE CHAIR GATTO added, "But if they worked exactly the number
of years required, then the spouse receives no reduction in
pension. Is that true?"
MS. CARPENTER offered her understanding that the surviving
spouse always receives a lower benefit than the member under the
normal retirement scenario.
9:12:08 AM
VICE CHAIR GATTO responded that he doesn't think that's true.
He offered his understanding that if a person reaches normal
retirement, retires, and then dies, that person's spouse would
receive that person's pension.
9:12:26 AM
MS. MILLHORN [shook her head no]. She explained that if a
member chooses a joint survivor benefit at retirement, then
dies, the benefits are then "actuarially reduced from what it
would be normally" and the spouse would receive a lifetime
monthly benefit equal to 75 percent [of the deceased member's
benefit].
MS. MILLHORN, in response to questions from Vice Chair Gatto,
reviewed that the election for joint survivor benefit is
irrevocable, and there are three percentages from which to
choose: 75 percent, 50 percent, and 66.66 percent. She
explained that there is a section within the division that - at
the time that a member is contemplating retirement - will
calculate the member's benefits under normal retirement,
calculate joint and survivor options for all three percentage
options, and present those options to the member. The member
will then consider those options, look at the benefits that
correspond to each one of the elections, and "make a financial
decision based on the information and the projections about what
those benefits will be for themselves and their spouse."
9:15:57 AM
MS. MILLHORN, in response to a question from Vice Chair Gatto,
explained that when a member who had selected the 66.66 percent
joint survivor option amount dies, his/her spouse would "receive
a reduced benefit from the 66.66 amount."
9:16:26 AM
VICE CHAIR GATTO asked, "So, why would a person pick anything
less than the highest 75 [percent amount]?"
9:16:39 AM
MS. MILLHORN indicated that it is the "financial dollar amount"
that helps a member make his/her election. She offered to
provide some example projections to Vice Chair Gatto for
clarification purposes.
9:17:03 AM
REPRESENTATIVE SEATON reiterated Vice Chair Gatto's question and
asked for further clarification.
9:17:37 AM
MS. MILLHORN clarified as follows:
If you chose a 50 percent joint and survivor option,
the benefit is actuarially reduced from what it would
be normally. So, you're looking at the age of the
member, you're looking at the age of the spouse, and
it is actuarially reduced, because you are selecting a
joint survivor option. Based on that, should that
member perish, then that calculation reduces for the
survivor benefit amount. So, first of all, they're
looking at the member's age, they're looking at the
spouse's age, and they are making a projection that is
the 50 percent amount. But that's actuarially reduced
from your normal retirement and benefit amount,
because it contemplates that should the member perish,
it has a lifetime benefit for the spouse, as well.
9:18:47 AM
MS. MILLHORN, in response to a question from Representative
Seaton, she said the percentage chosen for the spouse to receive
is for the lifetime of the spouse and is received as a lifetime
annuity payment.
REPRESENTATIVE SEATON said he thinks the committee needs the
scenarios brought to them.
9:20:39 AM
REPRESENTATIVE SEATON, in response to an interchange between
Vice Chair Gatto and Ms. Millhorn, using an example amount of
$3,500, said:
I think I'm understanding now. So, what you're saying
is you get to normal retirement age and you say, "I
want the $3,500, and that's going to be for my
lifetime, and when I die - we've been getting $3,500 a
month, and that's it. When I die there's nothing else
there." Or, I can say, "Instead of having $3,500 a
month, I want to have half of that now, but that will
continue for the lifetime of my spouse - that same
benefit." Or, if we wanted 75 percent, we'd say,
"Okay, we're going to have 75 percent, but when I die,
for the lifetime of my spouse, ... because we're
taking 75 percent of the money now, there'll be a much
reduced rate that my spouse will take." And that
those options are the same as two-thirds, so that
those options are selected by me at the point of
retirement and that will determine the amount of cash
I get now based on what I think will happen in the
future.
9:21:43 AM
MS. MILLHORN responded:
I think you've summed that up correctly. Each one of
those survivor options has a reduced benefit to the
survivor, but in order to select that option, it's a
reduced amount from the normal retirement amount.
Because you're taking care of your spouse for her
lifetime, as well, and she may live longer - or he.
9:22:24 AM
MS. MILLHORN, in response to a question from Vice Chair Gatto,
said if a member who is married retires and selects a joint
survivor benefit, that benefit will remain with the original
spouse in the event that the member divorces and remarries. In
response to a follow-up question from Vice Chair Gatto, she said
those criteria are found in a qualified domestic relations order
(QDRO - pronounced "quadro").
9:23:23 AM
REPRESENTATIVE GARDNER stated her understanding that HB 475 is
intended to correct scenarios overlooked by SB 141. She told
Ms. Millhorn that if that is an accurate assessment, then she
would like to know if there are any other areas that need to be
addressed.
9:24:02 AM
MS. MILLHORN concurred that the intent of HB 475 is to clarify
provisions in SB 141. Furthermore, the amendments that the
committee addressed today would add additional benefits. She
said the bill is pretty broad. She said there could be some
issues that still need to be addressed that may surface through
conference with the Department of Law and a legal tax advisor;
although there may be none. She said there are many questions
currently up in the air.
9:25:39 AM
REPRESENTATIVE SEATON told Representative Gardner that the only
other issue that he is aware of that needs to be addressed is
related to termination of the plan. He explained that currently
employers under the defined benefit (DB) plan can terminate
their participation in the plan, and that would still remain in
effect [in SB 141]; however, he said, "We don't have a
corresponding election to terminate under the [defined
contribution (DC)] portion."
9:27:06 AM
VICE CHAIR GATTO, bringing the discussion back to spousal
benefits, told the committee about a firefighter who had not
been much more than a year on the job and was newly married when
he was killed in the line of duty. He offered his understanding
that because the man died in the line of duty, an amount of
66.66 percent would go to his surviving spouse. He asked Ms.
Millhorn to confirm if that is true.
9:28:06 AM
MS. MILLHORN reiterated her offer to have information put
together for Vice Chair Gatto that would answer heretofore-
unanswered questions.
9:28:34 AM
VICE CHAIR GATTO listed some of the various possibilities
related to retirement benefits. He stated his concern is what
will happen to his spouse upon his death. He said he did not
know until recently that her benefits would be a reduced amount.
He said he would like everything to be as clear as possible for
members making one-time elections.
9:30:31 AM
REPRESENTATIVE SEATON reminded Vice Chair Gatto that the
elections he has been discussing with Ms. Millhorn "are under
[the] DB plan ..., if you're not talking about the death and
disability function." He said under the DC plan there will be
"a known amount that will flow 100 percent to your spouse." He
added, "And so, there won't be that same kind of election unless
you select to have an annuity plan, which was an option as
well."
9:31:49 AM
MS. CARPENTER, in response to a question from Vice Chair Gatto,
stated her understanding that at the last committee hearing on
HB 475 there was some concern expressed that "what we might be
doing is somehow precluding persons with teachers' certificates
from participating in ... TRS." She said that is not the case.
Ms. Carpenter explained that "this section" is intended to
clarify that under PERS statute, the terms "member" and
"employee" are interchangeable and mean a person who is eligible
to participate in PERS.
9:32:29 AM
VICE CHAIR GATTO recollected that his issue had been that a
teacher is a certified employee, but there are certified
employees that are not teachers. He asked, "Is that our intent
to include certified employees even though they're not a
classroom teacher?"
9:33:05 AM
MS. CARPENTER responded, "This section does not deal with that
issue. The term 'teacher' is defined under ... TRS statutes and
... includes persons who hold a teacher's certificate and
includes such persons as school nurses and others under the list
who are required to hold a certificate." She said that the
intent of "this particular provision under PERS" is to clarify
that those employed with the Department of Labor and with the
Department of Education, who are required to hold teachers'
certificates for those positions, are by definition included in
TRS.
9:34:36 AM
VICE CHAIR GATTO hand the gavel back to Chair Seaton.
9:34:54 AM
DORIS ROBBINS, testifying on behalf of herself, noted that she
is a the legislative chair for the Retired Public Employees of
Alaska. She noted for the record that the average retirement
salary is more like $1,500 than the $3,500 used in the previous
example.
CHAIR SEATON explained that had just been a number pulled out of
a hat for example purposes.
MS. ROBERTS stated her great concern about the need for such
legislation as HB 475. She questioned why due care was not
taken before passing SB 141.
CHAIR SEATON said the committee does not have SB 141 before it,
but is looking at some technical amendments for HB 475. He said
he would like feedback from the public regarding the amendments
that are being proposed.
MS. ROBBINS explained that she is concerned that [the
legislature], with its attention on current oil legislation, is
"still not going to get it right." She noted that she and
another RPEA member met with Senator Gary Wilken regarding a
statement he had made that benefits are bulletproof and "we
would be inflation-proofed with SB 141 in place." Ms. Robbins
continued:
But there's a statement in the bill that says the
financial condition of the fund would only permit an
increase in benefits [if] the ratio of the total fund
assets of the accrued liability meets or exceeds 105
percent. And we just wondered if ... HB 475 would be
trying to correct that.
Now, we did get a clarification back through ...
Senator Wilken's inquiry that, yes, we would be
affected by that and may not receive inflation
proofing, and I would like to have more information
about that from you today.
MS. ROBBINS recommended passing SB 293, which would postpone
implementation [of SB 141]. She said she is concerned about
possible legal problems that may arise with the federal
government in regard to SB 141. She asked, "How can you know
that contribution rates are accurate if you don't have the
latest actuarial report." She said she is speaking of
corrections such as HB 475, but she is concerned that "you may
not get them all done."
9:39:38 AM
CHAIR SEATON noted that the actuarial calculations are handled
by the Alaska Retirement Management (ARM) Board, which he said
supersedes the Alaska State Pension Investment Board (ASPIB) and
the Teachers' Retirement System Board. Those calculations are
not done by the legislature, he clarified.
9:40:03 AM
MS. ROBBINS stated her understanding that the ARM Board does not
yet have regulatory authority, and she asked, "Are you going to
be able to help them with that?"
9:40:25 AM
CHAIR SEATON said he would look into that issue, as well as the
issue regarding inflation proofing to which Ms. Robbins
previously referred. Chair Seaton surmised that, regarding the
latter issue, Ms. Robbins must have been talking about the post
retirement pension adjustment (PRPA).
MS. ROBBINS said yes.
9:40:35 AM
CHARLES GALLAGHER, testifying on behalf of himself, noted that
he is the Northern Region's chair of the Retired Public
Employees of Alaska. He indicated that SB 141 and the
amendments of HB 475 are confusing. He said the amendments were
presented to the RPEA two weeks ago during its biannual
convention in Juneau. He stated that it appears that many
people do not understand "this." He referred to a handout in
the committee packet that he had provided to the committee
[regarding PRPA], and in particular he referred to the third
page of the handout, which he said details the subject of
inflation proofing. He continued:
The 105 percent provision precludes inflation proofing
at 100 percent. The dollars that will affect you,
Representative Gatto, are substantial, and ... I have
never seen them come out like this: Between 1997 and
2002, when that PRPA was paid, it inflation-proofed
with the figures I was able to get at 15 percent. ...
I think the average retirement pay per year is about
$20,000 in our 30,000 members [who are] retirees. If
you were receiving that, you would lose, in that
period of time of loss, $3,000 per year in inflation
proofing. That's a substantial amount.
9:43:21 AM
CHAIR SEATON noted that PRPAs have not been paid in the last
three years because of the underfunded status of the plan, not
because of SB 141. He said SB 141 gave legislative direction
regarding when [the PRPAs] could be paid and the committee will
consider that issue. He concluded, "That's not a technical
amendment to the bill; that's a policy call. And we're trying
to ... make this a technical bill for corrections and conflicts
within the different sections of the bill to make sure
everything comes out."
9:44:29 AM
CHAIR SEATON closed public testimony. He noted that the
amendments would be made available online on his web site.
CHAIR SEATON announced that HB 475 was heard and held.
HB 383-MOTOR VEHICLE TRANSACTIONS
9:46:16 AM
CHAIR SEATON announced that the last order of business was HOUSE
BILL NO. 383, "An Act limiting motor vehicle dealer charges for
fees and costs; relating to the disclosures required for certain
motor vehicle transactions; and requiring consumers to be
informed of finance charges paid to a motor vehicle dealer by a
financing institution on the sale of a used motor vehicle."
[Before the committee was the CSHB 383(TRA).]
9:46:21 AM
REPRESENTATIVE LES GARA, Alaska State Legislature, testified as
sponsor of HB 383. He said the bill would provide for full
information to be disclosed to consumers buying cars. He
explained that presently there are two fees that many car
dealers charge that are "somewhat hidden." The first fee is a
document ("doc") fee. He said the legislature thought it had
banned doc fees in 2002, but had not written the language in the
legislation tight enough. The second issue is what's known as a
dealer reserve.
REPRESENTATIVE GARA, regarding the definition of a dealer
reserve, explained that a car dealer will often offer a loan
through a bank. The percentage listed appears to be the bank's
rate; however, the dealer is often taking a cut from that
percentage. The consumer thinks that is the rate that the bank
is offering, so he/she doesn't bother shopping around. The bill
would require any dealer who charges a higher loan rate than
what the bank is charging to provide that information to the
customer. He noted that a case in Anchorage that brought the
bill to light cost the consumer approximately $900.
9:49:24 AM
REPRESENTATIVE GARA, regarding the doc fee, said that a consumer
and dealer will negotiate a price for a vehicle, but often when
the consumer sits down to sign the deal, he/she will find an
additional fee has been added. The consumer is often told that
the doc fee is nonnegotiable. Many consumers think that the doc
fee is a government fee and some car dealers don't dissuade
their customers from believing that. The bill would require any
nongovernmental fees to be included in the advertised and the
negotiate price.
REPRESENTATIVE GARA stated that both provisions are issues of
full disclosure; they don't change what a car dealer can charge.
The adoption of the proposed honest policy, he said, can save
constituents up to $1,500.
9:51:51 AM
CLYDE (ED) SNIFFEN, JR., Assistant Attorney General,
Commercial/Fair Business Section, Civil Division (Anchorage),
Department of Law, echoed Representative Gara's remark that the
original statute drafted in 2002 was intended to allow car
dealers to charge a doc fee, but that that doc fee be included
in the advertised price. What is happening now, he explained is
that dealers who included the doc fee in the advertised price
are negotiating a lower price with the customer and then adding
the doc fee back in. The distinction is being made between
"advertised" and "negotiated" price. He said he thinks that HB
383 would resolve that issue.
9:53:20 AM
REPRESENTATIVE LYNN asked how common a practice it is for the
bank rate listed to include a cut for the dealer.
9:53:43 AM
REPRESENTATIVE GARA responded that he doesn't know how common
the practice is, but he said he knows that a couple of the major
dealers in Anchorage do it.
9:54:09 AM
MR. SNIFFEN offered his understanding that the majority of
dealers use a dealer reserve; however, he noted that some don't
and use that fact in advertising.
9:54:45 AM
REPRESENTATIVE LYNN asked what the difference is "between this
practice ... and misrepresentation."
9:55:02 AM
REPRESENTATIVE GARA said there are lawyers who say "both the doc
practice and the dealer reserve practice is illegal" because
they are fraudulent practices. He said there is no Alaska
Supreme Court decision on that issue. He added, "Rather than
just wait for the courts to rule on it, ... what we want to do
is ban it outright in the statute so there's no question." He
noted that there is a press article in the committee packet.
9:55:38 AM
REPRESENTATIVE LYNN indicated that he is a proponent of full
disclosure, not only for elected officials, but also for those
who do business with the public.
9:55:54 AM
REPRESENTATIVE GATTO asked what is so wrong with letting the
consumer end negotiations if he/she doesn't agree with the doc
fee being charged.
9:56:43 AM
MR. SNIFFEN responded that the problem with the doc fee is that
the car dealerships present them to the customer as "some kind
of additional fee that the dealer is paying to a third party."
For example it may be disguised as a governmental fee. He said
more sophisticated consumers may offer a firm price and tell the
dealer that it has to include all fees, but less sophisticated
consumers don't take that approach and are led to believe that
the doc fee is one over which they have no control. Mr. Sniffen
said [that misrepresentation] is really the issue at hand.
9:58:09 AM
REPRESENTATIVE GATTO said he has experienced having a dealer
tell him that there is nothing that can be done about doc fees.
He asked Mr. Sniffen if that dealer committed some violation by
making that statement.
9:59:07 AM
MR. SNIFFEN answered yes. He said the scenario that
Representative Gatto just described is fraud, and Representative
Gatto could sue that dealer for three times the amount of the
actual damages, plus full reasonable attorney fees if he could
prove the dealership actually said the aforementioned.
9:59:19 AM
JIM ARPINO stated that he was testifying on behalf of both
Affordable Used Cars, Fairbanks/Anchorage, and the Alaska Auto
Dealers Association (AADA). He said the doc fee is 100 percent
profit, which is nice because of all the costs of running a
business. Regarding financing, he said car dealers arrange
loans all day long and make money on it. Regarding consumers,
he emphasized that they are educated. Mr. Arpino said there are
625 books available through Amazon.com on buying a used vehicle.
Furthermore, there are 160 million sights on the Internet on how
to buy a used car.
10:02:47 AM
MR. ARPINO, in response to a question from Chair Seaton, said
what presents a problem in the bill is the definition of a
negotiated price. He said if someone asks what the doc fee is,
"we tell them it's profit - it goes in our pocket." He said,
"There's never any misunderstandings about whether it's a fee
that goes to a government agency; Mr. Sniffen's made it very
clear that's not the way he wants it portrayed." Mr. Arpino
said there are other businesses that have "doc-related" fees.
He offered an example.
10:03:55 AM
CHAIR SEATON asked Mr. Arpino to specify whether or not he is
opposing disclosure.
10:04:22 AM
MR. ARPINO said "we" want to continue to be able to add the doc
fee back in after negotiations. He stated, "That's the beauty
of free society." He said he thinks the legislature is sticking
its nose in a little too far. He added, "If you're going to
pick on this industry, you better start going after all the
other ones - and there's multiples of them."
MR. ARPINO, in response to a series of questions from
Representative Lynn, confirmed that the dealer markup price is
pure profit above the suggested retail price (SRP) and is not a
hidden amount. To Representative Lynn's suggestion that it
would be more honest to treat the doc fee in the same way, he
said the doc fee is not hidden at all. He said in his 13 years
at his job he has not had any complaints about the doc fee. He
stated, "I do oppose [the bill's proposal to mandate exposure of
the doc fee]; we would want to continue to add that in ... on
the negotiated price." He added, "And it's not a matter of
honesty; it's in the contract. It's right there, everybody
reads it, it's explained properly, and it's never really been an
issue until recently." He said most consumers, including him,
don't read the fine print in contracts, but he said he knew
during a recent purchase of a snowmobile that he was paying a
document fee.
10:06:56 AM
CHAIR SEATON asked Mr. Arpino if he also opposes the bill's
proposed requirement to disclose the percentage of interest
[that the car dealers may charge above the bank's fee].
10:07:20 AM
MR. ARPINO said he does oppose that proposal, because the
interest added to the bank fee is "another facet of our business
that we make money on." He said there are a lot of rates
available, some through the Internet, and it can be confusing
for the consumer.
10:08:01 AM
CHAIR SEATON said he recognizes that most people finance through
the car dealership because they appreciate the service that is
offered at that dealership.
10:08:30 AM
MR. ARPINO added that when the consumer makes the commitment to
buy, he/she is happy with the deal, including the doc fee and
interest rate. If the consumer finds out later that a better
deal could have been made by financing elsewhere, he/she has the
option at that point to finance elsewhere.
10:08:46 AM
REPRESENTATIVE GARDNER disputed Mr. Arpino's statement that when
asked, dealers will disclose that the doc fee is profit. She
said, "We had several dealers on the phone in this committee on
another bill not too long ago, and we asked them many times
about the doc fees and were told that it was for this, that, and
the other. And I specifically asked one woman to send us a
description of the kinds of things it covered, and at that time,
nobody was willing to say it was pure profit.
10:09:23 AM
MR. ARPINO responded that it's a matter of what is done with
that profit. For example, he said it could be used to pay
clerical fees. Each dealership will use it for a different
purpose, he said.
10:09:35 AM
REPRESENTATIVE GARDNER responded, "That's fine, but the dealers
who were on the phone at that time didn't acknowledge that it
was pure profit; they were saying that it covered specific
costs."
CHAIR SEATON said that issue could be part of committee
discussion.
10:09:45 AM
JOHN COOK, Legislative Director, Alaska Automobile Association,
said he was testifying on behalf of the association, and also on
behalf of Aurora Motors. He stated that he fully supports the
concept of the bill but doesn't support the bill as presently
worded, because it is discriminatory towards the automobile
industry. He said the bill is loosely worded and there are
already statutes in existence that address fraudulent
activities, deceptive practices, and truth in lending
disclosures. Mr. Cook said he has been charged doc fees by
snowmobile dealers, rental car agencies, and by an hotel. Any
business that arranges financing for any consumer participates
in some sort of dealer reserve, yet only car dealers are being
targeted by HB 383. He said the market will prevent a dealer
from charging too high a doc fee or from trying to retain too
much dealer reserve; consumers will walk away.
MR. COOK stated his concern that there is no legal definition of
"negotiated price." He said he has asked Mr. Sniffen for a
definition, but has not yet received it. He revealed that he is
a certified public accountant (CPA) and classifies a doc fee as
"revenue or other income." Regarding interest rate disclosures,
he stated his concern that the bill puts the dealer in a
fiduciary position with regard to the customer; it would take
the dealer a step towards having to go out and seek the lowest
possible financing for consumers.
10:14:04 AM
CHAIR SEATON asked Mr. Cook if he sees the bill as limiting the
interest that can be charged or just requiring that the dealers
disclose the additional interest that is added.
10:14:26 AM
MR. COOK replied that he doesn't see the bill as limiting the
interest. In response to a question from Representative Ramras,
he said the discount rate that the banks charge is "three points
less than prime."
10:14:41 AM
REPRESENTATIVE RAMRAS said any business that borrows from a bank
has the same relationship that a car dealer has with it's
customer; it can "enjoy funds at one rate and then ... mark up
those funds to a customer." The rate turns out to be
subjective, he said. He stated, "I've never gotten that much
disclosure from my banker."
10:15:53 AM
MR. COOK responded that he has not either. He said the banks
are regulated federally, and "their reasoning for anything is
that they're not subject to state regulation regarding any of
these matters." He noted that when he bought a house he wasn't
told what the cost of funds were, and when he bought many other
things on credit he never had it disclosed to him "that there
were lower loans available or what the cost of funds were."
10:16:08 AM
REPRESENTATIVE RAMRAS responded that that is his point. He
stated that although his concern is in regard to usurious
interest rates and having consumers taken advantage of, he has
been manipulated by his "series of banking relationships over
the last 20 years." He clarified his point is that the same
relationship occurs between banks and other proprietors as
exists between a car dealership and its customer.
10:17:17 AM
MR. COOK responded that that's correct.
10:17:29 AM
REPRESENTATIVE LYNN said he agrees that similar fees are charged
in other industries. He asked Mr. Cook if he thinks the
legislature should not fix one problem without first fixing all
the rest.
10:18:15 AM
MR. COOK answered no, but said he knows many other industries
that "have the exact same practices." He said he believes there
are statutes in existence that already govern doc fees. He
stated that over 14 years in business and with an excess of
1,500 transactions per year, he has never received a customer
complaint relating to doc fees.
10:19:00 AM
CHAIR SEATON closed public testimony.
10:19:22 AM
REPRESENTATIVE LYNN rephrased his previous statement about
having to fix all problems at once.
10:19:57 AM
REPRESENTATIVE GARDNER said she wants to underline that HB 383
does not prohibit practices; it just asks for disclosure.
10:20:36 AM
REPRESENTATIVE GATTO said he makes a distinction between a
consumer and a business. The latter has a business plan,
negotiates a loan form the bank, and the amount of the loan
payment is clearly identified. If there is a doc fee there,
it's part of the loan amount. Conversely, the individual who
goes to a car dealer goes rarely. That individual is used to
going to a doctor and paying a high fee, but is not asked for a
doc fee added on by that doctor. There are also no doc fees
added at the grocery store. He offered his understanding that
the issue of the bill is that it is all right to charge a doc
fee, as long as it is disclosed.
10:21:56 AM
REPRESENTATIVE RAMRAS revealed that he just bought a car in
Juneau for $3,000. He paid a 5 percent sales tax fee to the
City of Juneau, a $200 doc fee, and a $15 title fee. He said
when he asked the dealer what a doc fee is, he was told that it
is profit. He said restaurants do not disclose their costs,
versus their profits. He offered other examples.
Representative Ramras stated that he hates to see the car
industry demonized.
10:24:10 AM
CHAIR SEATON said the bill definitely has two components: the
doc fee and financing. He stated his hope that between the
present time and the next time the committee hears the bill,
feedback from consumers will come be forthcoming. He said he
thinks the testimony heard from the car dealers so far has been
legitimate. The proposed legislation would require that the
dealership tell the person being financed "what your cost of
money is and not what you're giving to the consumer." He said
it seems that in regard to the finance rate, full disclosure
exists.
10:26:13 AM
CHAIR SEATON, in response to a question from Representative
Gardner, said although he closed public testimony, he would
encourage people to send e-mails to his staff and would even
consider opening public testimony again if the need arises.
10:26:26 AM
REPRESENTATIVE GARA said the bill would not require car dealers
to disclose how much money they are making, but just to disclose
that there is a difference between what they are charging the
consumer and what the bank offered them. The reason behind that
proposed requirement is that the car dealer scenario is much
different than the bank scenario that was previously mentioned.
He continued as follows:
When you go to a bank, the bank is not representing to
you that the Federal Reserve Bank is charging this
amount, that's why I'm charging you this amount. When
you go to a bank, the bank says this is what the bank
is charging you. It would be fraudulent if they said
this is what the Federal Reserve Bank is charging.
What's going on in the car dealer situation is very
similar to as if a bank told you this is what the
Federal Reserve Bank is charging us, when that's not
true. The car dealer is charging you 5.5 percent,
let's say - and that's fine - but what it says in
there is 5.5 percent by ... First National Bank ...
[for example]. The consumer reasonably believes that
that's the amount that those banks are charging. In
fact, it's not.
So, that's the big difference. There's an implication
to the consumer that the bank is charging those rates
when they're not. And so, that's why the disclosure
is required here. ... There's a benefit to a
consumer to have the dealer arrange the financing
through the bank so they don't have to run back and
forth. That's up to the consumer whether they want to
pay the extra money to save that time .... All we
want to do is let them know: If you want to run back
to the bank, you might get a better deal; it's up to
you.
10:28:24 AM
REPRESENTATIVE GARDNER said, "I think ... just the fact that the
doc charge is listed with the sales and registration fee - both
of which go to other entities - ... is misleading to the
consumer. And there's an assumption, 'Oh yeah, these are all
the other fees that are not [related to] the dealer.'"
10:28:58 AM
CHAIR SEATON announced that HB 383 was heard and held.
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at
10:29:01 AM.
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