Legislature(2005 - 2006)CAPITOL 106
03/31/2005 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB214 | |
| HB191 || HB238 || HB177 || HB170 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 214 | TELECONFERENCED | |
| += | HB 170 | TELECONFERENCED | |
| += | HB 177 | TELECONFERENCED | |
| += | HB 191 | TELECONFERENCED | |
| *+ | HB 238 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
March 31, 2005
8:02 a.m.
MEMBERS PRESENT
Representative Paul Seaton, Chair
Representative Carl Gatto, Vice Chair
Representative Jim Elkins
Representative Bob Lynn
Representative Jay Ramras
Representative Max Gruenberg
MEMBERS ABSENT
Representative Berta Gardner
COMMITTEE CALENDAR
HOUSE BILL NO. 214
"An Act relating to anatomical gifts and the anatomical gift
donor registry program."
- MOVED HB 214 OUT OF COMMITTEE
HOUSE BILL NO. 191
"An Act relating to defined contribution systems for members of
the teachers' retirement system and the public employees'
retirement system; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 170
"An Act relating to the qualifications of public members of the
Public Employees' Retirement Board and the Alaska Teachers'
Retirement Board."
- HEARD AND HELD
HOUSE BILL NO. 177
"An Act relating to employee and employer contributions to the
teachers' retirement system and the public employees' retirement
system; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 238
"An Act relating to contribution rates for employers and members
in the defined benefit plans of the teachers' retirement system
and the public employees' retirement system and to the ad-hoc
post-retirement pension adjustment in the teachers' retirement
system; requiring insurance plans provided to members of the
teachers' retirement system, the judicial retirement system, the
public employees' retirement system, and the former elected
public officials retirement system to provide a list of
preferred drugs; relating to defined contribution plans for
members of the teachers' retirement system and the public
employees' retirement system; and providing for an effective
date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 214
SHORT TITLE: ANATOMICAL GIFTS & REGISTRY
SPONSOR(s): REPRESENTATIVE(s) MCGUIRE
03/09/05 (H) READ THE FIRST TIME - REFERRALS
03/09/05 (H) STA, HES
03/31/05 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 191
SHORT TITLE: PUBLIC EMPLOYEE/TEACHER RETIREMENT
SPONSOR(s): REPRESENTATIVE(s) KELLY
03/02/05 (H) READ THE FIRST TIME - REFERRALS
03/02/05 (H) STA, FIN
03/22/05 (H) STA AT 8:00 AM CAPITOL 106
03/22/05 (H) Heard & Held
03/22/05 (H) MINUTE(STA)
03/29/05 (H) STA AT 8:00 AM CAPITOL 106
03/29/05 (H) Scheduled But Not Heard
03/31/05 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 170
SHORT TITLE: PUB EMPLOYEES/TEACHERS RETIREMENT BOARDS
SPONSOR(s): REPRESENTATIVE(s) KELLY
02/23/05 (H) READ THE FIRST TIME - REFERRALS
02/23/05 (H) STA, FIN
03/22/05 (H) STA AT 8:00 AM CAPITOL 106
03/22/05 (H) Heard & Held
03/22/05 (H) MINUTE(STA)
03/29/05 (H) STA AT 8:00 AM CAPITOL 106
03/29/05 (H) Heard & Held
03/29/05 (H) MINUTE(STA)
03/31/05 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 177
SHORT TITLE: STATE EMPLOYEE RETIREMENT CONTRIBUTIONS
SPONSOR(s): REPRESENTATIVE(s) KELLY
02/25/05 (H) READ THE FIRST TIME - REFERRALS
02/25/05 (H) STA, FIN
03/22/05 (H) STA AT 8:00 AM CAPITOL 106
03/22/05 (H) Heard & Held
03/22/05 (H) MINUTE(STA)
03/29/05 (H) STA AT 8:00 AM CAPITOL 106
03/29/05 (H) Scheduled But Not Heard
03/31/05 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 238
SHORT TITLE: PUBLIC EMPLOYEE/TEACHER RETIREMENT
SPONSOR(s): STATE AFFAIRS
03/30/05 (H) READ THE FIRST TIME - REFERRALS
03/30/05 (H) STA, FIN
03/31/05 (H) STA AT 8:00 AM CAPITOL 106
WITNESS REGISTER
REPRESENTATIVE LESIL McGUIRE
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 214, as sponsor.
KERRY JARRELL, Assistant Superintendent
Bering Strait School District
Unalakleet, Alaska
POSITION STATEMENT: Testified on behalf of the school district
during the hearing on HB 191.
REPRESENTATIVE MIKE KELLY
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as sponsor of HB 191.
HEATH HILYARD, Staff
to Representative Mike Kelly
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented Version I to HB 191 on behalf of
Representative Kelly, sponsor.
MELANIE MILLHORN, Director
Division of Retirement & Benefits
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Offered a brief summary of the Alternative
1 and 2 medical plans, during the hearing on HB 191.
RICHARD SOLIE, SR., Ph.D., Member
Teachers' Retirement System Board
Fairbanks, Alaska
POSITION STATEMENT: Testified and answered questions during the
hearing on HB 191.
ACTION NARRATIVE
CHAIR PAUL SEATON called the House State Affairs Standing
Committee meeting to order at 8:02:49 AM. Representatives
Gatto, Elkins, Lynn, Ramras, and Seaton were present at the call
to order. Representative Gruenberg arrived as the meeting was
in progress.
HB 214-ANATOMICAL GIFTS
CHAIR SEATON announced that the first order of business was
HOUSE BILL NO. 214, "An Act relating to anatomical gifts and the
anatomical gift donor registry program."
The committee took an at-ease from 8:03:43 AM to 8:03:54 AM.
8:03:57 AM
REPRESENTATIVE LESIL McGUIRE, Alaska State Legislature, as
sponsor of HB 214, explained that the bill would make a
technical correction to a broader bill that last year's House
State Affairs Standing Committee passed, which created an
anatomical gift registry in Alaska. She stated for the record
that the registry has been successful. The proposed legislation
would expand the definitions in last year's bill. She said that
unwittingly a definition was adopted which left out "our only
organ and tissue bank here in the state of Alaska." The bill
would also clear up some inconsistencies between federal rulings
and state laws.
8:05:34 AM
REPRESENTATIVE LYNN emphasized his support of the bill. He
produced his driver's license, which shows that he is an organ
donor. He stated his concern that [there be] no organ donations
from any aborted fetuses or from any early induction fetuses
with abnormalities incompatible with life. He said he has been
told by Representative McGuire's staff that there may be a
federal law that addresses that. He said, "I have some
information that may be at odds with that, but this is not
something that I want to take ... the time [to address
currently]." He restated his support of the bill and said he
would probably formulate an amendment. He added, "And we can
address this during the interim between this committee and the
next committee of referral."
8:07:51 AM
REPRESENTATIVE GATTO directed attention to page 2, line 26, and
noted that the effort had been made to change "[MUST]" to
"shall". He asked if there is a legal or grammatical definition
that is different for each of those words.
8:08:34 AM
REPRESENTATIVE McGUIRE responded, "It's a drafting choice." She
added that it doesn't seem like much of a difference to her, but
in many of the legislative bills that have passed through the
House Judiciary Standing Committee, the move has been to change
the word to "shall".
8:08:43 AM
REPRESENTATIVE GATTO directed attention to page 3, line 15,
which provides the definition of "technician". He said he is
happy to see the definition in the bill. He offered further
details.
8:09:17 AM
REPRESENTATIVE McGUIRE stated for the record that she
appreciated Representative Gatto's comments last year [that lead
to the definition]. She added, "In fact, the definition was too
restrictive."
8:09:34 AM
REPRESENTATIVE RAMRAS emphasized that this is about organ
donors, not fetuses.
8:10:11 AM
REPRESENTATIVE LYNN responded that it's a matter of definitions.
8:10:56 AM
CHAIR SEATON closed public testimony.
8:11:04 AM
REPRESENTATIVE ELKINS moved to report HB 214 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objections, HB 214 was reported out of
the House State Affairs Standing Committee.
HB 191-PUBLIC EMPLOYEE/TEACHER RETIREMENT
HB 238-PUBLIC EMPLOYEE/TEACHER RETIREMENT
HB 177-STATE EMPLOYEE RETIREMENT CONTRIBUTIONS
HB 170-PUB EMPLOYEES/TEACHERS RETIREMENT BOARDS
8:11:39 AM
CHAIR SEATON announced that the next order of business was HB
191. [Although the chair did not officially announce that HB
170, HB 177, and HB 238 were before the committee, they were
discussed in conjunction with HB 191. See the committee
calendar for bill titles.]
The committee took an at-ease from 8:11:57 AM to 8:12:28 AM.
8:12:57 AM
KERRY JARRELL, Assistant Superintendent, Bering Strait School
District, testifying on behalf of the school district, told the
committee that he is also a certified public accountant (CPA)
and, as of two weeks prior, an appointee to the Teachers'
Retirement System (TRS) Board. He read his testimony as follows
[original punctuation provided with some format changes]:
Rhetoric in the press has described the current
condition of the retirement systems as the "PERS/TRS
meltdown". The combined conditions have been
characterized in the SB141 White Paper as a "perfect
storm". It is important to understand that, contrary
to the recent rhetoric, the factors that led us to
this point were not immediate, not rapidly developing,
and do not represent a meltdown. I am not suggesting
that the issues are not real, but I am suggesting that
they need to be viewed in their proper context.
Retirement systems are like supertankers that respond
slowly to environmental conditions and corrective
actions. The seeds of the problems as well as the
successes of the plans were planted and nourished over
the past twenty-five years. When critics speak of the
funding "crises" or "meltdown" of today, they are
actually looking twenty-five years into the future and
projecting what cumulatively will occur over that
period. Just as actuaries may have erred on many
projections over the past quarter of a century,
current actuarial estimates will no doubt miss the
mark over the next quarter of a century. Minor
changes in assumptions can cause enormous changes in
the funding status of the plans. Consider that a 2%
change up or down in the estimate of the rate of
growth of health care would change the unfunded
liability of the plans by over a billion dollars.
Actuaries will be the first to admit that their
projections are far from an exact science. It is
evident today that many of the assumptions throughout
the 1990's were incorrect. Health care costs were
growing much faster than we realized for nearly a
decade before actuarial assumptions were revised
around 2002. The retirement plans that appeared fully
funded in the late 1990's were obviously under funded.
Correcting those assumptions in 2002 resulted in a
multi-year adjustment that startled everyone. Those
adjustments did not reveal mismanagement of the assets
by the ASPIB, the boards, or the administration; they
simply revealed that the state, its municipalities,
and its school districts had been underpaying the
necessary contributions for health care to keep the
system healthy. Had more accurate rates been imposed
earlier, the unfunded liability would not sit on the
books of the retirement systems, it would be reflected
on the books of the municipalities, boroughs, and
school districts.
I would like to offer the following observations and
recommendations for the legislature to consider.
8:16:33 AM
The major problem with our retirement plans is health
care. In the 1980's and early 1990's health care was
relatively more affordable than it is today. For the
eleven-year period from 1992 to 2003, 69 % of the
increase in unfunded liabilities, amounting to roughly
$3.7 billion, came from excess increases in health
care costs. I use the term "excess" to mean that
health care costs were $3.7 billion more than the plan
benchmark or estimate for that period. If it weren't
for that $3.7 billion deficit, we would not be here
today and there would be no discussion of overhauling
the retirement system.
The retirement super tanker has developed several
leaks. By leaks, I mean benefits have been provided
that have not been funded or calculated into the
contribution rates. These leaks mandate payments
greater than the plan ever intended. For example,
there is no correlation between the earnings and
contributions of part-time local public officials and
the eventual benefits provided to those individuals.
Under current provisions, a school board member or
council member earns and pays little into the system,
but they receive free medical coverage at 55 or 60.
Their contribution to the retirement system could be
as low as $1,000 over their entire career, yet they
could receive almost unlimited medical for them and
their dependents for up to a generation.
Additionally, many schemes have been used by employees
to boost eligible salaries in the final years of
employment. Consequently, salary rates are often
considerably higher than they should be. Termination
bonuses have recently been identified in the press,
but service credits, overtime, final year pay
increases, etc. can produce large increases in
benefits without reasonable contributions to the
system to offset them. These practices create
unfunded liabilities.
One of the most overlooked leaks in the super tanker
is masked in the benefit formula itself. Using the
high three years for benefit calculation produces
built in losses for the system. This piece of the
formula, which has been considered sacred until now,
consistently created an unfunded liability for every
single participant.
8:19:11 AM
Much has been spoken about reducing the risk to the
employers by moving to defined contribution plans.
While the change to a defined contribution plan may
limit the exposure for local and state governments,
any plan that undermines the retirement security of
public employees will eventually drive good people
from public service. Retirement plans, by their very
nature, are structured to protect employees, not to
take advantage of them. A blended approach that
gradually introduces the concept will spread risk
equally among employers, the state, and employees.
8:19:52 AM
Recommendations:
Immediate changes need to be made to the health plan
in order to maximize savings in every area possible.
Aggressive steps should be taken to initiate preferred
provider networks. Preferred prescription providers
and the use of generic drugs should become mandatory
under the plan. Increasing co-payments for drugs and
services would spread the cost of services among
beneficiaries and the plan. Disease management and
large case management have been extremely beneficial
in reducing unnecessary procedures and limiting
hospital stays. I have personally administered a
large self-funded plan for our school district for the
past ten years. We have successfully implemented all
of these procedures and realized considerable savings
from them. The PERS/TRS Health Plan is large enough
to wield considerable influence in negotiating savings
with service providers.
Implement the changes in health care access that were
recommended in the PERS & TRS Tier Proposals. These
included limiting entry into the system until
beneficiaries reach the age of 65 and assessing
premiums based on years of service. Limiting access
to health care for part time elected officials would
also help relieve the unfunded liability.
Stop the leaks caused by unfunded benefits. Any
provision in the current statutes that drains from the
system should be identified and corrected. Make the
necessary changes to statutes that currently allow
supplemental earnings to boost the wage base for
retirement calculations.
Amend the formula for retirement benefits to create a
more reasonable base period for eligible salaries. A
minimum of ten years of earnings should be used for
benefit calculation purposes. This will dilute the
effects of any large payouts in the final years of
employment and will help insure that benefits more
evenly match contributions.
Take a very conservative approach in implementing
elements of a defined contribution plan. The division
of retirement and benefits has offered PERS and TRS
Tier Proposals that incorporate a defined contribution
plan that is more gradual. It provides significantly
more protection for the state and the employer without
totally abolishing the benefits of the current plan.
The plans are healthy in terms of their ability to pay
pension benefits. In spite of all of the bear market,
low interest rates, legislative changes, etc., the
pension portion of the plans were well funded and were
in the top ten percent of state retirement systems as
measured by one of the top pension experts, Wilshire
Research. The success of that portion of the plans
should be preserved to the extent possible.
The plans have served the state and its residents well
for many years and can continue to do so in the
future. Rather than dismantling the plan, we urge you
to consider a combination of mid-course corrections
and prospective changes.
We thank you for the opportunity to address these
issues. I would be happy to answer any questions from
the committee.
8:23:39 AM
CHAIR SEATON reminded testifiers to address HB 191, which
establishes a defined contribution plan.
8:24:45 AM
MR. JARRELL, in response to questions from Representative Gatto,
said the district he represents has 11 school board members, and
there are 1,800 students spread over 15 villages, in an area of
approximately 80,000 square miles.
8:25:00 AM
REPRESENTATIVE GATTO noted that many of the teachers in Mr.
Jarrell's district don't make big salaries. He asked if that
would be an indication of what Mr. Jarrell talked about
regarding people who contribute a small amount to the retirement
system, yet reap the health benefits. He asked, "Are you just
as guilty as anyone could be of having 11 school board members,
all of which qualify to take money from the plan and yet fund
very little of it to the plan?"
8:25:05 AM
MR. JARRELL agreed that his school district certainly fits in
that category. He said, "As an observer and a representative of
the retirement system, if we're ever going to have a system that
keeps up - contributions keep up with benefits - that's an area
that will have to be corrected."
8:26:21 AM
CHAIR SEATON said that municipalities and school districts are
finding that someone getting paid $50 a month for being on a
school board or city council for 10 years not only has access to
the medical benefits, but also has access to retirement if that
person was a previous employee of the borough or state, because
the liability accrues for the number of years that the person
worked. That person will get the liability for their full
pension.
8:27:39 AM
MR. JARRELL said there are technical corrections that need to be
made. He suggested looking at 10 years or even the entire
number of years in a person's career, and to base the retirement
benefit on the overall average of the earnings. He explained,
"That way the contribution to the system would bear a direct
correlation to the benefits that were eventually accrued by that
person."
8:28:06 AM
CHAIR SEATON responded that he agrees with that, except:
We don't have the accrued payments by the individual
employer's school district, versus how much you paid,
but how many years of service. So, even if you did a
spread that would lower the people's eventual
retirement amount, but there's a portion that is going
to be absorbed by the school district by having people
- basically volunteers - working on there and having
them have access to that, it's still going to be
proportionately much greater than their ... monetary
contributions into the system.
MR. JARRELL stated that he believes that's true.
CHAIR SEATON continued:
And I guess the ... question about how it relates to
[HB] 191 is that if ... this was a defined
contribution program, then that problem goes away,
right? Because whatever ... contribution they've
gotten from the school board, that's the liability
that the school board has to put forward. And
whatever contribution they've gotten from the state
employment or employment with the borough, that's that
portion. So, all of a sudden we get this
proportionality, so that we're switching from how many
years you were active in an area to how much you
contributed to the system from that employer.
MR. JARDELL responded that's correct.
8:29:39 AM
REPRESENTATIVE RAMRAS said he has been speaking with "some of
the PERS/TRS people that have been in our hallways the last
couple of days." He offered some names. He said HB 191 "is
forced savings; ... it takes it up to a 10 percent ... savings
rate." He asked what the effect would be on retention. He
mentioned an article, in which Dr. Short, the superintendent for
the Fairbanks North Star Borough, indicated that she would lose
200 teachers immediately, because they would not be able to
"afford the higher savings rate that was put on them." He said,
"If you read this documentation, a defined contribution plan is
going to end up with wealthier, better-off retirees 20-30 years
from now, and a lot of this just seems like fear of change."
8:31:48 AM
MR. JARRELL deferred to Dr. Solie.
8:32:31 AM
REPRESENTATIVE RAMRAS told Chair Seaton that he would like to
hear Mr. Jarrell's opinion.
8:32:42 AM
CHAIR SEATON said how much money there is "at the end" would
depend on what the contribution rate is.
8:32:56 AM
MR. JARRELL said he thinks results will depend upon the
knowledge and investment experience of each individual. He said
he thinks that to completely remove the defined benefit from
people will leave a number of them with no benefit whatsoever.
He noted that teachers, in particular, do not have social
security; they have no other benefits whatsoever. He said PERS
employees generally do, or have the Supplemental Benefits System
(SBS), which takes the place of social security. He said many
teachers are good at what they do but are not savvy when it
comes to their own financial investments. With a blended plan
there would be at least some benefit.
8:34:10 AM
CHAIR SEATON asked if Mr. Jarrell would approve of a plan in
which there was a requirement that investments such as SBS had
to be made.
8:34:49 AM
MR. JARRELL reiterated that he would like to defer to Dr. Solie.
Notwithstanding that, he said if half of the contributions were
going into a defined contribution plan with a fixed rate of
return, then it would be acting the same as a defined benefit
plan and "should take care of at least a portion of that."
8:35:26 AM
CHAIR SEATON noted that there is a committee substitute for HB
191.
8:35:38 AM
REPRESENTATIVE MIKE KELLY, Alaska State Legislature, testifying
as sponsor of HB 191, said the bill focuses only on a defined
contribution plan. He noted that another bill of his addresses
a change in the structure of the boards [HB 170], while yet
another would bring the 45,000 existing employees to the payment
table [HB 177]. None of the plans would change existing
benefits, "except for the new employees coming into the door."
8:37:05 AM
REPRESENTATIVE GATTO moved to adopt the committee substitute
(CS) for HB 191, Version 24-LS0461\I, Craver, 3/30/05, as a work
draft. There being no objection, Version I was before the
committee.
8:37:51 AM
HEATH HILYARD, Staff to Representative Mike Kelly, Alaska State
Legislature, presented Version I on behalf of Representative
Kelly, sponsor. He indicated the changes made by Version I.
8:39:43 AM
REPRESENTATIVE GRUENBERG asked Mr. Hilyard to prepare a chart in
detail, citing by page and line the changes he just reviewed.
MR. HILYARD said he would do so.
8:40:28 AM
CHAIR SEATON reminded the committee that the following bills are
related: HB 191, HB 170, HB 177, and HB 238. He said the
committee should not be contrasting any of those bills with
"what's happening in the other body."
8:41:46 AM
REPRESENTATIVE RAMRAS repeated his previous questions regarding
retention, the fear factor, and the rate increase.
8:42:40 AM
REPRESENTATIVE KELLY reiterated that the DC plan has nothing to
do with existing employees. He said it's important to remember
that "there are ways to put sideboards so that folks that don't
have ... that special talent to invest" can "leave that in a
much more conservative protected status."
8:43:43 AM
CHAIR SEATON asked:
So, Representative Kelly, in your bill you have the
board assigning a number of investment managers, such
as SBS. Is that correct? I mean, this isn't
individually the pure 401K, where you can go out and
then put all your money in Enron stock or ... in Dell,
or someplace else. This is money managers that have
been approved by the board, and you could select ...
certain money managers with different risk ...
portfolios.
8:44:08 AM
REPRESENTATIVE KELLY answered that's correct. Regarding fear of
new plans, he submitted that for the new person coming in the
door, the defined contribution plan "has every bit the ability"
to attract and retain that a defined benefit plan has.
Furthermore, for the younger employee who is probably going to
change careers several times in the 40-plus years they work, the
defined contribution plan is highly portable and "turns out to
be quite attractive to the younger set." He said, "That's that
unvested portion in the current DB plan; if they want to stay
there, they'll have that option. But if they want to transfer
across, then it's a simple education program to show them the
comparative analysis of the two plans ...."
8:45:15 AM
CHAIR SEATON referred to a summary included in the committee
packet. He said the employer contribution would eventually
reach 8 percent for TRS and 8.75 percent for PERS. The
contribution by employees would be higher in TRS than in PERS.
He asked why the plan was made that way.
8:46:31 AM
REPRESENTATIVE KELLY said "this" takes the two alternatives
formulated by Mercer Human Resource Consulting and reflects some
of the different retirement options among the classes of
employee. He offered his understanding that it would attempt
"on TRS side" to at least partially address the social security
"opt out impact." He deferred further explanation to the
Division of Retirement & Benefits.
8:47:08 AM
CHAIR SEATON noted that the medical portion of Version I of HB
191 shows that 3.5 percent of the contribution would be for
medical, with another 1 percent for the health care
reimbursement plan. He said he is trying to figure out "how
this works in the first several years." He observed that,
regarding employer contribution rates, 4.75 percent would be
dedicated, but only between 0 and 2 percent is being taken from
the employer in the first and second year, respectively. He
asked if that was intentional.
8:48:11 AM
MR. HILYARD said at this time that was intentional; it was left
at a graduated level with the understanding that it would
provide no benefit in year one.
8:48:39 AM
CHAIR SEATON asked, "So, the bill lays that out that there are
no contributions for medical benefits. ... Is that for the
first four years or so?"
8:49:01 AM
MR. HILYARD clarified, "That graduation would apply to both
rates: the 3.75 [percent] for the medical and then the 4.25
[percent] ... in ... TRS.... So, you would essentially graduate
by increments of 25 percent of the total."
CHAIR SEATON said he would flag that area for later work.
8:49:16 AM
REPRESENTATIVE KELLY stated the intent was to encourage "someone
to stay with us," which is why it is graduated.
8:49:28 AM
REPRESENTATIVE GATTO noted that police/fire employees are able
to retire after 25 years, instead of 30; however, their
contribution rate is higher than that of the 30-year employees.
He said he did not notice that there would be a difference in
the contribution rate for police/fire for employers. He asked
if "this group of employees" would not "become more expensive to
the system" because of leaving it earlier without supplying as
much in contributions.
8:50:34 AM
MR. HILYARD responded that the sponsor was essentially following
the Mercer Human Resources Alternative 2 option. He said, "With
respect to adjustment, I think that is definitely something
that's open for discussion and amendment. We were just trying
to use a baseline of a plan, so that we could bring something
forward to the committee."
8:51:12 AM
CHAIR SEATON interpreted that new employees in TRS, PERS, and
police/fire would all be retirement eligible at 30 years. He
directed attention to page 2 of the summary, which shows that
under the medical system a person would have to retirement
directly from the system with 30 years of service, or be 65 with
at least 10 years.
8:51:57 AM
MR. HILYARD answered that's correct. He noted that lines 15-28
on page 11 refer to TRS. He noted that there is a provision for
PERS and Public Safety employees on page 39, lines 2-3, which
says that the member must have at least 25 years of service as a
peace officer or fire fighter and 30 years for all other
employees.
8:53:15 AM
REPRESENTATIVE KELLY mentioned gap coverage provisions, by which
a person can get access to coverage before a certain age by
paying for it.
8:54:30 AM
CHAIR SEATON stated his understanding that the medical portion
of Version I had not been changed from the original bill.
REPRESENTATIVE KELLY [off microphone] said the medical portion
has changed.
CHAIR SEATON noted that it is the same as the tier committee
task force recommendation.
8:56:33 AM
MELANIE MILLHORN, Director, Division of Retirement & Benefits,
Department of Administration, stated that the medical plan is
same for both Alternative 1 and Alternative 2. She indicated
that those alternatives set out the criteria by which
individuals are able to receive medical coverage. The tier
committee specifically determined that an employee had to retire
out of the system, had to be age 60, and had to have 10 years of
service, or satisfy the requirements through years of service
instead of age. The years of service for police/fire and TRS is
25 years, and 30 years for PERS.
8:58:30 AM
MS. MILLHORN, in response to a question from Chair Seaton,
stated the following:
The two specific components within the medical design
include pre-65 and post-65. So, pre-65 includes a
defined dollar benefit for the members. ... It's
based on years of service, so each year the division
would determine what the premium amount is for that
particular coverage, and then, based on years of
service, the member would receive a subsidy amount
associated with that. ... Post-65 medial coverage
coordinates with Medicare. It's also derived by
looking at the years of service for the individual,
and the individual will pay a contribution amount
based on that premium amount established by the
system.
9:00:19 AM
MS. MILLHORN, in response to a follow-up question from Chair
Seaton, clarified that if a person has not been employed 30
years [in PERS] he/she would have to be age 60 with 10 years of
service. She said a person who is 65 and has worked 25 years
would receive a subsidy amount under the defined benefit plan
for medical coverage at 75 percent. In response to a question
from Chair Seaton, she said, "It's the premium that's set out
based on the claims amount that year." In 2004, for example,
the premium was $5,962.
9:02:41 AM
MS. MILLHORN, in response to Chair Seaton, explained as follows:
When we establish that premium amount, one other
component associated with the defined dollar benefit
portion - the pre-65 - is that there's a 5 percent
medical inflation factor that is considered every year
for that subsidy amount.
9:03:06 AM
CHAIR SEATON asked if the premium can only grow at 5 percent a
year.
9:03:25 AM
MS. MILLHORN answered that's correct. She confirmed that that's
true no matter what the medical costs are. In response to a
follow-up question from Chair Seaton, she indicated that the
member would have a portion that he/she will have to absorb.
9:03:44 AM
CHAIR SEATON asked that Ms. Millhorn give a Power Point
presentation on Saturday regarding the medical aspects of a
defined contribution program.
9:04:32 AM
REPRESENTATIVE GATTO asked Ms. Millhorn if, during her upcoming
presentation, she could offer some sample scenarios.
9:05:49 AM
MS. MILLHORN said one important component that fits in with the
medical plan design is the health reimbursement arrangement,
which is designed to ensure that members have "those expenses
allowable for them to pay that additional cost" between the
defined benefit pre-65 portion and the defined health benefit
for post-65.
9:06:36 AM
CHAIR SEATON asked that Ms. Millhorn be prepared to make
comparisons between the medical benefits in HB 191 and HB 238.
9:09:09 AM
CHAIR SEATON, after considering Dr. Solie's schedule, said he
would allow him to talk about the other related House bills, but
asked him to specify whenever he changed focus.
9:10:11 AM
RICHARD SOLIE, SR., Ph.D., testifying as a member of the TRS
Board, noted that he is a retired professor of Economics, and
was also the head of the department, as well as the acting dean
of the School of Management. He stated that he was appointed to
the TRS Board by Governor Frank Murkowski in the summer of 2003,
and reappointed to a full term in January 2004. He was one of
the four members on the tier committee charged with developing
proposals for a new retirement plan for both TRS and PERS.
9:12:33 AM
DR. SOLIE, regarding member contributions, stated his
understanding that there is difference in approach between HB
238 and HB 191. Dr. Solie named two components: equal sharing
of normal costs, and equal sharing of past due liabilities. He
said both components are relevant to HB 191 and are "partially
relevant with respect to HB 238 ...." He stated that he
philosophically agrees with the concept of equal sharing of the
normal costs. Both Alternatives 1 and 2 include employee
contributions that would be as high or higher than those of the
employer. He said he would agree with doing that with existing
plan members "if it will pass court muster."
DR. SOLIE stated concern regarding the 5 percent a year
potential increase. He said, "If it were a sharing of normal
costs, that really wouldn't come into play, but if it were
sharing in the past ... unfunded liabilities, then it would.
And I have a real problem with that. I think you can imagine
what a teacher or public employee would feel like if they were
faced with the kind of increases that were envisioned there
...." He stated that it was the 5 percent issue, not the 10
percent employee contribution under a proposed defined
contribution plan, to which previously mentioned Superintendent
Short in Fairbanks had responded.
9:16:06 AM
CHAIR SEATON told Dr. Solie that HB 238 would have a 13 percent
cap for PERS and a 14 percent cap for TRS. He asked if that
would solve the problem for Dr. Solie.
9:16:50 AM
DR. SOLIE responded that that solves a lot of the problem;
however, he still has a philosophical problem. He mentioned the
percentages of "ramp up" for PERS and TRS to "cover the total
maximum." He said he thinks that it would be difficult to ramp
that up in one year. He emphasized that he is speaking both
personally and philosophically on the subject; he cannot speak
on behalf of TRS or PERS members as a whole. He said he thinks
there is a fairness in the idea of sharing the normal cost.
9:17:41 AM
CHAIR SEATON asked Dr. Solie what percentage of "ramp up" would
be acceptable to him.
9:18:12 AM
DR. SOLIE responded that he is reluctant to say, but less would
be better than more. He continued:
I wouldn't have ... had a personal problem with ... a
2.5 percent ramp up, but I suspect that there are a
number that were not in the position that I was, in
where it would have been a much more difficult thing.
I mean, I think just view it from the standpoint:
it's a federal tax. If you were told that your
federal tax was going to go up - no exemptions on it -
... 2.5 percent a year, or 5 percent, or whatever,
it's significant. And so, the slower the rate at
which that could be phased in, the better it would be.
9:19:17 AM
CHAIR SEATON said the committee would consider that issue.
9:19:32 AM
REPRESENTATIVE GATTO said saying one amount is "better than"
another breeds the question: "Better for [whom]?" He said any
time something is better for one, it's got to be worse for
another.
9:20:24 AM
DR. SOLIE responded that he thinks his previous remarks were
clearly from the standpoint of the employee and the impact on
the turnover. He continued:
But my point was that the amount lost to the fund by a
slower ramp up is not going to be great. And I
personally think that the tradeoff between what the
fund would lose in a slower ramp up would be more than
offset by the lessened impact on the employee and the
turnover situation.
9:21:03 AM
DR. SOLIE, in response to Representative Gruenberg, offered
further details regarding his positions at the university.
9:21:59 AM
REPRESENTATIVE GRUENBERG observed that Dr. Solie was in a
position to observe the management and retention issue regarding
at least one part of the university. He stated that he doesn't
want to do anything that would impede the university's ability
to attract the best faculty. He said he knows one issue that
attracts and keeps good people is the pension plan of the
university system. He asked Dr. Solie to evaluate which plan -
defined benefit or defined contribution - would attract and
retain the best.
9:23:25 AM
DR. SOLIE opined that the current defined benefit plan "would be
the most attractive." He said he thinks that for an individual
coming to Alaska for a shorter period of time with no intention
of staying long term, a defined contribution plan would be
superior. He said that may apply to attracting teachers to the
Bush, because he said he suspects that a lot of the teachers who
go out to the Bush don't do so with the idea of making that a
career.
9:24:32 AM
REPRESENTATIVE GRUENBERG said he would like to limit his
question to the university system.
9:24:46 AM
DR. SOLIE said - as it pertains to attracting younger faculty
members - that it is not overwhelmingly significant whether the
retirement plan is defined benefit, defined contribution, or a
hybrid. He noted that when he was involved with the university
there was a Supplemental Benefits System (SBS). He opined that,
particularly with younger employees, salary is much more
important than the benefit plan. In response to a question from
Representative Gruenberg, he said he thinks that is still true
today. He listed some areas that are tough to recruit people
in: accounting, finance, economics. He talked about initiating
a step plan in salary for those areas that were tough to recruit
for, which enabled the university to attract people to those
areas.
9:27:23 AM
CHAIR SEATON reminded Representative Gruenberg that
representatives of the university had - during another hearing -
talked about the university's optional retirement plan (ORP) - a
defined contribution plan, which a majority of eligible members
have chosen.
9:28:10 AM
REPRESENTATIVE GRUENBERG explained that he was interested in
hearing Dr. Solie's perspective, because it is from the point of
view of a person who's made his career at one institution.
9:28:33 AM
DR. SOLIE said he thinks retention is different issue; as
professors get older, the defined benefit plan takes on
significance. Furthermore, access to the health care plan
becomes a critical issue in terms of retention.
CHAIR SEATON said it should be possible to get exact numbers
from the university, regarding how many people are in PERS
versus how many chose ORP.
9:29:32 AM
DR. SOLIE, regarding past unfunded liabilities - particularly
with respect to HB 191 - said, "That would share all of the way
up on the unfunded liability." He said that could potentially
mean as much as "25-32 percent sharing." In response to a
remark by Chair Seaton, he confirmed that he is talking about
the combination of the normal cost and the past unfunded
liability. He added that it's the past unfunded liability that
is "the really big part of it." He continued as follows:
There, I think that would be a very serious problem
from two standpoints. Number one, just the amount. I
mean, that would be a potential killer. And that's
the issue upon which Superintendent Short in Fairbanks
said she would have these 190-some teachers that would
walk out the door the next day.
9:31:33 AM
CHAIR SEATON reminded Dr. Solie that [HB 238] "doesn't take that
tack."
CHAIR SEATON said he thinks that part of the issue can be
dropped, because the House State Affairs Standing Committee is
fully aware that it can't be taking 25 percent of somebody's
salary and putting it into their retirement plan.
9:31:49 AM
DR. SOLIE suggested that a relevant point is the balance of the
unfunded liabilities that are attributable to current retirees
as compared to "current actives." He said a question to Mercer
[Human Resource Consulting] revealed that in TRS, "approximately
72 percent of the unfunded liabilities are attached to
nonactives; only about 28 percent are attached to actives." For
PERS, the numbers are a little bit lower: about 67 percent of
the unfunded liabilities are attached to nonactives. He stated
his point is that a vast majority of the unfunded liabilities
are attached to the current retirees "and nobody is talking
about sending them a bill for it." He explained that the
existing employees would be paying a major part of the bill for
those retired; they would be paying for something that is not
going to benefit them and in no way is attributable to them. He
added that even among current active employees there would be a
serious imbalance, because the individual who is about to retire
has accrued a major part of that unfunded liability, whereas the
new employee who comes into the system has none. He said, "And
yet it's the new employee ... who's going to pay that bill for
his whole career."
9:34:14 AM
CHAIR SEATON said, "That's some of the reason why we need a cap
that works into the realm of those contributing people in the
current tiers [who] would be looking at past service costs on
the benefits that they're going to receive." He noted for the
record: the increased contribution amount is addressed in
Representative Kelly's HB 177; HB 191 addresses only the defined
contribution plan; and both elements are addressed in HB 238.
9:34:39 AM
REPRESENTATIVE GATTO asked if Alaska would be a model for the
federal government to fix its own social security problem.
9:35:07 AM
DR. SOLIE replied that the federal government's problem is
simpler. He explained that the projections indicate that once
the social security fund runs dry the benefits have to be paid
out of current contributions, and at that point in time the
contributions are estimated to pay for about 75 percent of the
benefits. Over time that will dip to approximately 68 percent.
Even with that significant reduction, the system is capable, on
the basis of current income, of providing the bulk of the
benefits. Conversely, if Alaska doesn't cover it's costs, TRS
will be broke in about 25 years and the current contributions
would be a much smaller fraction of the benefit. He offered his
understanding that, regarding social security, about a 2 percent
increase in the social security tax would fix the problem. He
added, "Also, lifting the maximum would go part of the way."
9:36:54 AM
CHAIR SEATON said that with social security "it's all unfunded
liability." He explained, "Present dollars are paying the
present." Alaska is attempting to collect enough money so that
it will grow over time to pay the benefits that are "related to
that employee."
9:37:36 AM
REPRESENTATIVE RAMRAS asked if Dr. Solie is concerned about
rushing a solution, and whether he thinks the legislature should
find a solution this year, or reflect to next January.
9:38:20 AM
DR. SOLIE stated that he's heard it said that anyone who
recommends delaying the solution doesn't understand the
seriousness of the problem, but he said he doesn't agree with
that. He said he thinks this is a serious issue. Once the
legislature establishes a new tier, based on the way that the
supreme court has ruled in the past, those benefits are
basically set in concrete. He stated that it would behoove the
legislature to get it right the first time. He said he thinks
the tier committee came up with some good ideas, but he is not
prepared to say that it was the best plan. He said there are
things being proposed that need serious consideration and the
cost of delaying one year would cause minimal effect.
DR. SOLIE noted that actuarial projections show that if the
legislature, as of July 1, [2005], was to eliminate the benefit
plans completely for all new employees, it would still be 10
years before the PERS rate would drop to 25 percent and the TRS
rate would still be 30 percent at that point. He said, "The new
plan is only going to bring that down gradually." He said there
are things that can be done within the current plan that don't
require action by the legislature. For example, the
administration can make changes to the health care plan, which
is where he said the biggest problem is.
9:40:40 AM
DR. SOLIE said he has spoken with [Sam] Trivette of [the Retired
Public Employees of Alaska (RPEA)] and found him to be open to
addressing some of the issues and to work cooperatively with the
state.
9:41:11 AM
REPRESENTATIVE RAMRAS stated concern that the legislature
doesn't have bankers and economists to explain what it means to
solve a problem like this.
9:41:53 AM
DR. SOLIE said his written testimony shows that he agrees with
the concept of increased professionalism on the boards and with
the concept of bringing in some outside members who are not
members of [either] system. He clarified that that does not
mean that he doesn't have the greatest of respect for the
current members of the board. He added, "But I do think that,
with some of the issues that we grapple with, some expertise in
the areas spelled out in some of the bills would be a positive,
and bringing in the public perspective would be a positive."
Regarding HB 170 - the recomposition of the boards - he stated
concern that there be guaranteed seats on the board [for] people
"representing those plans." He explained that it is trust funds
put in trust for [PERS/TRS members] that the board manages, and
large sums of money have been put into those funds by [PERS/TRS
members] for the purpose of providing for their retirement plan.
He stated that he thinks it is absolutely essential that [those
members] be represented on the boards and "should have the
majority."
9:44:15 AM
CHAIR SEATON offered his understanding that the PERS board
members are currently selected through an election process which
costs approximately $80,000. He asked how TRS selects its
members.
DR. SOLIE said, "I think there is a ... provision where there
can be nominations from employee groups, but the governor makes
the appointment."
9:45:37 AM
DR. SOLIE, in response to a question from Chair Seaton, noted
that the board is comprised of people who are either current
retirees or "current actives." He said there is no "guarantee
of access" for the TRS Board. He stated that although that has
worked well, he sees emerging from the bills being discussed an
emphasis on professionalism and outside experience. He said
that makes him fear that "it might shift away and it would lose
sight of the need to have representation from this group." In
response to a follow-up question from Chair Seaton, Dr. Solie
stated:
Frankly, the appointment process doesn't bother me,
even if it weren't a nomination, as long as there were
some dedicated seats. And I'm sure that the labor
organizations would have a different view of that than
I.
9:46:39 AM
REPRESENTATIVE ELKINS asked Dr. Solie if he has given
recommendations to the administration and if it has shown any
indication that it might be willing to implement those
regulations.
9:47:10 AM
DR. SOLIE answered yes. He qualified that he can only speak in
a limited fashion regarding that, because he has only been on
board for 1.5 years, and he was not a member of the health
committee, which has been primarily responsible for "forwarding
some of those recommendations." However, he said he knows in
the past that "they dealt significantly with the issue of
increasing ... the generic drug participation." During that
time, as a result of an educational program that was
implemented, Dr. Solie said he thinks there was an increase of
at least 5 percentage points in the percentage of generic drug
usage. He noted that each percentage point saves about $1
million.
DR. SOLIE reported that there were about 8 issues that were
forwarded in the most recent board meeting and the
administration seemed open to a request to give a report on the
progress of those issues at the next PERS/TRS meeting. He said
HB 238 - a closed formulary issue - was one of the
recommendations. There are others that could be cost saving.
He said he heard that 80 percent of hospital care in Anchorage
is provided by Providence Hospital, and yet that hospital is not
a preferred provider. He indicated that if it were, the savings
could equal 20-30 percent. He concluded, "So, I think there are
things that can be done that will engender significant savings
out of the current program without the need for change."
9:50:12 AM
REPRESENTATIVE ELKINS said he understands and appreciates what
Dr. Solie is saying. He thanked him for being well spoken.
9:50:50 AM
REPRESENTATIVE GRUENBERG said he finds the testimony of Dr.
Solie helpful and he encouraged letting Dr. Solie continue his
testimony by teleconference in the future.
9:51:29 AM
DR. SOLIE, in response to a question from Representative Gatto,
stated his understanding that there would be one hospital in
Anchorage, for example, that would be named as the preferred
provider, and if anyone who went to another hospital, he/she
would pay the additional cost.
9:51:57 AM
DR. SOLIE stated that he is not opposed to the concept of a
defined contribution plan. He asked the committee to recall
that the Alternative I proposal advanced by the tier proposal
committee was a hybrid of a defined contribution and defined
benefit plan. He said the [tier proposal] committee voted
unanimously against the Alternative II plan. One of the basic
reasons for the committee's choice, he explained, was that
"there was a recognition that many of the employees in the State
of Alaska and none of the teachers within the system are covered
by social security; thus they don't have the basic floor ...
that social security provides." He said the committee felt
strongly that there was a need for a floor, which is why it
proposed "the 1 percent [defined benefit plan]."
DR. SOLIE stated that surveys conducted showed that employers
were in favor of reducing costs and sharing the risk. They did
not indicate that they wanted to shift the whole risk to the
employees, nor did they want the employees to bear a
tremendously large additional increase.
9:53:46 AM
CHAIR SEATON responded that he has had "a very different
conversation with the employers." He said their main concern
was not reducing costs from the current normal cost rate, but
was in regard to a huge escalation of costs. He stated that if
the legislature decides on a defined contribution plan it is
critical to figure out whether to drop below the contribution
rate that employers have been paying for the last 20 years or to
focus on not jumping the rate up.
9:55:32 AM
DR. SOLIE responded as follows:
Number one, we had no control over the past service
unfunded liability. That's an issue that was separate
that we couldn't do anything about, frankly. All we
could deal with is the cost of employees entering a
new tier, other than these other factors that I've
mentioned of potential savings mainly in the medical
side. But the plan that we proposed would have
reduced the employer contribution to 8.75 percent for
TRS and to 8 percent for PERS. It would have had the
employee contribution at 10 percent for TRS and at 8
percent for PERS.
9:56:22 AM
CHAIR SEATON asked if, knowing the past service costs were going
to increase, reducing the normal service cost was the only thing
that could be controlled.
9:56:36 AM
DR. SOLIE answered that's right. He said, "We were focusing on
reducing the normal cost on the part of the plan that we felt we
had some authority to affect."
9:56:45 AM
CHAIR SEATON surmised that the driving force for that was that
"the total contribution rate was going to be so high that you
were trying to reduce it wherever you could, and that's where
you thought you could."
9:57:00 AM
DR. SOLIE indicated that is partly the reason. He stated, "I
also feel that ... there are going to need to be some
adjustments in retirement plans, and ours is amplified by that
huge unfunded liability."
9:57:50 AM
CHAIR SEATON drew attention to a draft sectional analysis
compiled by his staff [included in the committee packet].
9:58:07 AM
DR. SOLIE, in regard to HB 238, stated the following:
As I calculate it, under HB 238, the employer ...
share of the normal cost would be 11 percent; our
proposal was 8.75 [percent]. ... For the PERS side,
the employer contribution would be 10 [percent]; our
proposal was 8 [percent]. Now, the fact of the matter
is, it's going to take at least that amount of
increased contribution on the part of the employers -
or at least a combination of employers and employees -
to provide a [defined benefit] plan that will give
coverage that is at all comparable to what the current
defined benefit or to what our blended plan would
provide. And I say that because there is, I think,
pretty well established information in the literature
showing that, typically, individually managed plans
earn rates of return that are significantly below
those of the pool funds. And the figure that is most
commonly bandied about is about 2 percent. I ran some
numbers using a 1.5 percent reduced rate.
9:59:43 AM
CHAIR SEATON added that, in relation to that, the only
selections are those that are available from the board. He
said, "So, it's like SBS."
9:59:49 AM
DR. SOLIE said he understands that. He added, "But ...
nevertheless, within that would be selections which would
include fixed income versus equities, and probably some
international funds, and so on. And in the selection among
those, the general result is that the employee-managed funds
earn less." He emphasized that those results are based on the
figures he had available. He mentioned a model that he said he
would share with Chair Seaton's staff. He offered further
details on his model as it relates to males. He said he assumed
in his example that the individual would buy an annuity, which
would be indexed for inflation the same way as the current plan
is. He noted that the numbers would be different for females
because of their longer life expectancy. He offered further
details. He emphasized that females would be penalized
significantly by a defined contribution plan compared to males.
10:02:29 AM
CHAIR SEATON pointed out that in HB 238, there would be 10
percent each from employer and employee for PERS, and 11 percent
each from employer and employee for TRS. He indicated that that
doesn't include the medical calculation.
10:03:06 AM
DR. SOLIE explained that he was just "pulling out the portions
that would have been dedicated to the [defined contribution]
plan," because the [tier proposal committee's] proposal included
a medical plan in it. He stated that the committee had proposed
a health care plan with an 8.75 percent contribution for TRS and
8 percent for PERS. Additionally, as Ms. Millhorn described,
the employer subsidy was designed to begin at the normal
retirement of age 60. He said, "I may have missed it, but I
quickly went through [HB 191], and I couldn't see it coming in
until age 65. So, that's a concern."
10:04:28 AM
CHAIR SEATON stated that there is quite a difference between HB
191 and HB 238, because the latter does [set the retirement age]
at 60.
10:04:37 AM
DR. SOLIE, regarding the provision of not giving any premium
support until age 65 in HB 191, said there is "a similar
arrangement on the Senate side." He said he spoke with Miles
Baker, [Staff to Senator Bert Stedman]. He indicated that [a
higher retirement age] "reduced the normal cost of the health
care plan from 3.75 [percent] to 1 percent." In terms of what
is proposed in HB 238, he offered his understanding that the
bill would give premium support at age 60. He added:
But we had a much more conservative approach to that
... such as described by ... [Ms. Millhorn]. I think
it was sufficiently complex that it didn't come
through. And I have to apologize for that, because it
was my idea to do it. But, as was described, in the
60-65 period the employer was paying a percentage of
this fixed initial amount, which would be inflated by
the increase in health care costs, up to a maximum of
5 percent per year. But the premium is going to be
inflated by the health care cost. So, in effect, in
the 60-65, what we were saying is they start out
equally, but the ... health care responsibility - of
which the employer pays a percentage - would rise at 5
percent per year. The actual health care costs are
going up faster. And so, the employer is only paying
a percentage of this part [emphasis on "this"]; the
employee pays all of the additional balance of this
part. So, the employee bears the full risk in the 60-
65 period of above average health care increases.
Whereas in the 65-and-on period then it's as you have
defined it. So, what you have got in the 60-65 is
really a significantly more expensive plan than what
we proposed, and frankly, I would recommend going to
an approach such as ours. Because ... 60-65, ... the
pre-Medicare eligible age, ... is the one that is
really killing the system; that's the really expensive
part. So, I would suggest that you look at that and
go back to what I call a [defined benefit] type of
health care plan participation in the 60-65 period. I
think that will save money in the long run.
CHAIR SEATON said he hopes the administration will come forward
at the next meeting with a medical presentation, in which the
issues Dr. Solie mentioned could be included.
10:07:16 AM
DR. SOLIE, regarding normal retirement age, said the idea of
changing the retirement age as each mortality table is released
could cause some confusion. He said the table could increase
that age every year. Additionally, there has been a long-term
trend of life expectancies increasing close to 2.5 years every
decade, thus, in two decades, the normal retirement age would be
up to the Medicare eligibility, unless the latter was raised.
He suggested the legislature adjust the retirement age no more
than every five years and cap the normal retirement at whatever
Medicare eligibility age is.
10:09:13 AM
CHAIR SEATON indicated that, in [HB 238], the defined age of 65
was taken out and Medicare eligibility was inserted.
10:09:25 AM
DR. SOLIE noted that the tier proposal committee's plan would
use Medicare eligibility, because "we were aware of that
possibility in the future."
10:09:41 AM
DR. SOLIE made one final comment on HB 191 and the build up of
contributions rates in the first five years. He also stated his
understanding that HB 238 "has vesting over the period." He
said he thinks the approach in HB 238 is far superior; it gives
an incentive for the shorter-term employees to stay. He offered
further details.
10:10:41 AM
REPRESENTATIVE LYNN asked that Dr. Solie be available by
teleconference in the future.
[HB 191 was heard and held.]
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at
10:11:02 AM.
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